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Business Groups and Risk Sharing around the World

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Author Info
Khanna, Tarun
Yafeh, Yishay
Abstract

We use a new database from fifteen emerging markets as well as from prewar and modern Japan to examine the popular view that business groups - ubiquitous in most emerging markets - facilitate risk sharing by smoothing the performance of affiliated firms. We replicate existing results on risk sharing by Japanese keiretsu, find evidence of risk sharing in some other countries (e.g. Korea, Thailand), and very limited evidence of "liquidity smoothing" in one country, India. However, in most countries, our estimates of risk sharing are usually not statistically significant. Tests of two-dimensional first-order-stochastic-dominance suggest that the Japan result - that group affiliated firms have both lower levels of operating profitability and lower standard deviations of operating profitability - does not generalize to most emerging markets. We also find no correlation between the extent of capital market development and the extent of risk sharing provided by business groups. The popular view of the importance of risk sharing in business groups is thus not validated by our analysis.

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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2002-8.

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Length: 60 p.
Date of creation: Sep 2002
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Handle: RePEc:hit:hitcei:2002-8

Note: This Version: May 2002
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ahn, Sanghoon, 2003. "Technology Upgrading with Learning Cost," CEI Working Paper Series 2003-21, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Gennaioli, Nicola & Rossi, Stefano, 2008. "Judicial Discretion in Corporate Bankruptcy," CEI Working Paper Series 2008-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Gennaioli, Nicola & Rossi, Stefano, 2008. "Optimal Resolutions of Financial Distress by Contract," CEI Working Paper Series 2008-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  4. Hanazaki, Masaharu & Horiuchi, Akiyoshi, 2003. "Have Banks Contributed to Efficient Management in Japan's Manufacturing?," CEI Working Paper Series 2003-22, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  5. Dallago, Bruno, 2003. "Comparative Economic Systems and the New Comparative Economics: Foes, Competitors, or Complementary?," CEI Working Paper Series 2003-24, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  6. Hanazaki, Masaharu & Souma, Toshiyuki & Wiwattanakantang, Yupana, 2004. "Silent Large Shareholders and Entrenched Bank Management: Evidence from the Banking Crisis in Japan," CEI Working Paper Series 2004-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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