Allocating Risk Across Pyramidal Tiers: Evidence from Thai Business Groups
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.
|Date of creation:||Apr 2008|
|Note:||April 22, 2008|
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CEI Working Paper Series
2003-19, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- 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.
- Breusch, T.S. & Pagan, A.R., .
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CORE Discussion Papers RP
412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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