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Allocating Risk Across Pyramidal Tiers: Evidence from Thai Business Groups

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  • Bunkanwanicha, Pramuan
  • Wiwattanakantang, Yupana

Abstract

This 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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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15823/1/wp2007-14a.pdf
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Bibliographic Info

Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2007-14.

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Length: 33 p.
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:hit:hitcei:2007-14

Note: April 22, 2008
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Related research

Keywords: Pyramids; Business groups; Family Firms; Banks; Corporate Governance; Emerging markets; Thailand;

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  1. Breusch, T.S. & Pagan, A.R., . "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP -412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Chutatong Charumilind & Raja Kali & Yupana Wiwattanakantang, 2006. "Connected Lending: Thailand before the Financial Crisis," The Journal of Business, University of Chicago Press, vol. 79(1), pages 181-218, January.
  3. 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.
  4. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
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