Allocating Risk Across Pyramidal Tiers: Evidence from Thai Business Groups
AbstractThis paper shows that pyramidal ownership can be used to control downside risk. The research setting is Thailand before and after the 1997 Asian crisis. The focus is on family business groups that owned banks. The results show that the controlling family pursues different investment strategies for banks across pyramidal tiers in order to mitigate the entire group risk. Lower tier banks are used to undertake risky loans, while upper tier banks carry out more profitable investments. After the crisis hit, upper tier banks survived and almost all lower tier banks went bankrupt. By letting lower tier banks fail, the controlling family was able to save the rest of the group's firms.
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Bibliographic InfoPaper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2007-14.
Length: 33 p.
Date of creation: Apr 2008
Date of revision:
Note: April 22, 2008
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Web page: http://cei.ier.hit-u.ac.jp/
More information through EDIRC
Pyramids; Business groups; Family Firms; Banks; Corporate Governance; Emerging markets; Thailand;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
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.:
- Charumilind, Chutatong & Kali, Raja & Wiwattanakantang, Yupana, 2003.
"Connected Lending: Thailand before the Financial Crisis,"
CEI Working Paper Series
2003-19, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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- Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 239-53, January.
- Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
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