Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices
53 Pages Posted: 9 May 2018 Last revised: 10 May 2019
Date Written: April 17, 2018
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
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