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Business Groups: Panics, Runs, Organ Banks and Zombie Firms


  • Asli M. Colpan
  • Randall Morck


Business groups often contain banks or near banks that can protect group firms from economic shocks. A group bank subordinate to other group firms can become an “organ bank” that selflessly bails out distressed group firms and anticipates a government bailout. A group bank subordinating other group firms can extend loans to suppress their risk-taking to default risk, preserving risk-averse low-productivity zombie firms. Actual business groups can fall between these polar cases. Subordinated group banks magnify risk-taking; subordinating banks suppress risk-taking; yet both distortions promote business group firms’ survival. Limiting intragroup income and risk shifting, severing banks from business groups, or dismantling business groups may mitigate both distortions; but also limits business groups’ internal markets, thought important where external markets work poorly.

Suggested Citation

  • Asli M. Colpan & Randall Morck, 2021. "Business Groups: Panics, Runs, Organ Banks and Zombie Firms," NBER Working Papers 29035, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:29035
    Note: CF

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    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • N2 - Economic History - - Financial Markets and Institutions

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