Working Paper: NBER ID: w25908
Authors: Mara Faccio; Randall Morck; M. Deniz Yavuz
Abstract: 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.
Keywords: business groups; stock prices; idiosyncratic volatility; commodity shocks
JEL Codes: G14; G15; G32; G34; M41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Business group affiliation (L39) | Stock price responses to commodity shocks (G13) |
| Unaffiliated firms (G29) | Sensitivity to commodity price shocks (Q02) |
| Group affiliated firms (L22) | Sensitivity to commodity price shocks (Q02) |
| Previously unaffiliated firms becoming group affiliated (L22) | Sensitivity to commodity price shocks (Q02) |
| Ceasing group affiliation (D71) | Sensitivity to commodity price shocks (Q02) |