NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices

Mara Faccio, Randall Morck, M. Deniz Yavuz

NBER Working Paper No. 25908
Issued in May 2019
NBER Program(s):Corporate Finance Program

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 otherwise similar unaffiliated firms. Global commodity price shocks are common shocks that contribute to firm-level idiosyncratic risk because they affect industries heterogeneously. Idiosyncratic components of 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.

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Document Object Identifier (DOI): 10.3386/w25908

 
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