Investors’ Perception of Business Group Membership during An Economic Crisis: Evidence from the COVID-19 Pandemic
54 Pages Posted: 29 Jul 2021 Last revised: 31 Oct 2021
Date Written: September 7, 2021
This paper examines how investors perceive business group membership in Korea during the COVID-19 pandemic. Evidence of a time-varying and heterogeneous value of affiliation emerges from stock price performance analysis. I find that investors discount business group affiliation during a market collapse, but are willing to pay a premium for affiliation during market recovery. Overall, this pattern is more pronounced for financially weak affiliates and large business groups. Results also show that business group membership alleviates investors’ concerns regarding financial flexibility highlighting the role of internal capital markets as a substitute to external finance.
Keywords: Business groups, financial crisis, COVID-19, internal capital market, Korea
JEL Classification: G01, G14, G38, L20
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