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Allocating Risk Across Pyramidal Tiers: Evidence from Thai Business Groups

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  • Bunkanwanicha, Pramuan
  • Wiwattanakantang, Yupana
  • ウィワッタナカンタン, ユパナ

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.

Suggested Citation

  • Bunkanwanicha, Pramuan & Wiwattanakantang, Yupana & ウィワッタナカンタン, ユパナ, 2008. "Allocating Risk Across Pyramidal Tiers: Evidence from Thai Business Groups," CEI Working Paper Series 2007-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2007-14
    Note: April 22, 2008
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/15823/wp2007-14a.pdf
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    References listed on IDEAS

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    Cited by:

    1. Irfah Najihah Basir Malan & Norhana Salamudin & Noryati Ahmad, 2013. "Ownership and Control Divergence on Firm Value," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 4(1), pages 78-85, January.

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    More about this item

    Keywords

    Pyramids; Business groups; Family Firms; Banks; Corporate Governance; Emerging markets; Thailand;
    All these keywords.

    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

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