Does Stock Price Crash of Firms in the Same Business Group Cause Stock Price Crash in Other Member Firm? Evidence from Korea

Sewon Kwon, Taejin Jung, Hee Yeon Sunwoo, Sang Giun Yim

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

This article examines the spillover of stock price crash within business groups. Using Korean business group data, we find that the crash risk of a firm is positively associated with the crash risk of other member firms in the same business group. We also find that crashes spread but do not arise simultaneously across firms within a business group. Further analyses reveal that the documented association is stronger in firms with more inter-company transactions and those with lower market-to-book ratios. Our article contributes to the literature by suggesting that the consequence of opportunistic behaviors of controlling shareholders (i.e., stock crash of a member firm) spills over within business groups.

Original languageEnglish
Pages (from-to)1566-1592
Number of pages27
JournalEmerging Markets Finance and Trade
Volume55
Issue number7
DOIs
StatePublished - 28 May 2019

Keywords

  • business group affiliation
  • G12
  • M41
  • spillover
  • stock price crash

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