This paper has greatly benefited from the comments of an anonymous reviewer.
Are Member Firms of Corporate Groups Less Risky?
Article first published online: 31 MAR 2010
© 2010 Financial Management Association International
Volume 39, Issue 1, pages 59–82, Spring 2010
How to Cite
Chen, C. R., Guo, W. and Tay, N. S.P. (2010), Are Member Firms of Corporate Groups Less Risky?. Financial Management, 39: 59–82. doi: 10.1111/j.1755-053X.2009.01066.x
- Issue published online: 31 MAR 2010
- Article first published online: 31 MAR 2010
The evidence we uncover suggests that the practice of profit and risk sharing among keiretsu firms reduces the firm level idiosyncratic risk. However, rather than eliminating firm-level risk, it is being transformed into market-level risk. Since market-level risk is priced, this actually destroys shareholders’ wealth. Additionally, the heightened correlation among keiretsu firms essentially diminishes the diversification efficacy of a portfolio of keiretsu firms. In summary, our results suggest that the practice of profit and risk sharing, which on the surface seems to be a blessing, may actually have a detrimental effect on the value of keiretsu firms.