The Effect of Group Affiliation on the Risk-Taking of Japanese Firms

Posted: 21 Dec 2007

See all articles by Pascal Nguyen

Pascal Nguyen

University of New South Wales

Sophie Nivoix

Universite de Poitiers

Abstract

This article examines the role of keiretsu (i.e. business group) affiliation on the risk-taking of Japanese firms. We find that total risk, measured by firm-level stock price volatility, is not significantly affected by keiretsu membership. The reason is that affiliated firms are characterized by lower idiosyncratic risk along with higher systematic risk. However, idiosyncratic risk varies across business groups and appears to depend upon the firm's inclination towards its group. In contrast, the higher systematic risk of group affiliates is significant for each keiretsu and every degree of group inclination. Moreover, this result remains after adjusting risk for firm characteristics and industry effects. Hence, the consequence of group affiliation may more accurately be described by higher systematic risk. This result could reflect the weaker competitive position of keiretsu affiliates.

Keywords: keiretsu, systematic risk, idiosyncratic risk, competitive advantage

JEL Classification: G30

Suggested Citation

Nguyen, Pascal and Nivoix, Sophie, The Effect of Group Affiliation on the Risk-Taking of Japanese Firms. Applied Financial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1077462

Pascal Nguyen (Contact Author)

University of New South Wales ( email )

Sydney, NSW 2052
Australia
(61) 2-9385-5773 (Phone)
(61) 2-9385-6730 (Fax)

HOME PAGE: http://www.banking.unsw.edu.au/pascalnguyen/

Sophie Nivoix

Universite de Poitiers ( email )

93 avenue du recteur Pineau
Poitiers, 86000
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
358
PlumX Metrics