Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices

53 Pages Posted: 9 May 2018 Last revised: 10 May 2019

See all articles by Mara Faccio

Mara Faccio

Purdue University - Krannert School of Management; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

M. Deniz Yavuz

Purdue University - Krannert School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 17, 2018

Abstract

In lower income economies, stocks exhibit less idiosyncratic volatility and business groups are more prevalent. This study connects these two findings by showing that business group affiliated firms’ stock returns exhibit less idiosyncratic volatility than do the returns of unaffiliated firms. We use idiosyncratic shocks to global commodity prices to hold the characteristics of shocks constant across firms. We show that idiosyncratic commodity shocks are incorporated less into idiosyncratic returns of group affiliates than unaffiliated firms in the same industry and economy. Identification follows from difference-in-difference tests exploiting successful and matched-exogenously-failed control block transactions.

Keywords: Business Groups, Incorporation of Firm-Specific Information, Return Co-Movement, Idiosyncratic Return, Synchronous Stock Price Movements

JEL Classification: G14, G15, G32, G34, M41

Suggested Citation

Faccio, Mara and Morck, Randall K. and Yavuz, M. Deniz, Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices (April 17, 2018). University of Alberta School of Business Research Paper No. 2018-504-1. Available at SSRN: https://ssrn.com/abstract=3167489 or http://dx.doi.org/10.2139/ssrn.3167489

Mara Faccio

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

M. Deniz Yavuz (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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