[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/wly/finmar/v28y2019i2p187-212.html
   My bibliography  Save this article

The impact of business group affiliation on stock price informativeness: Evidence from an emerging market

Author

Listed:
  • A. Melih Küllü
  • Doug Dyer
  • Gokhan Yilmaz
  • Zenu Sharma
Abstract
This paper examines the relationship between business group affiliation and stock price informativeness in an emerging market setting. We use stock price synchronicity as a measure, and study the impact of group affiliation ‐specifically the extent of affiliation, ownership structure and existence of group bank‐ on firm specific information content. Results reveal that the amount of firm‐specific information capitalized into stock prices tends to be lower (higher) when the firm is group‐affiliated (unaffiliated), indirectly (directly) owned, and affiliated group has (does not have) a group bank. Additionally, the extent of group affiliation maintains a non‐linear relationship with synchronicity, suggesting that the perception of higher versus lower levels of group ownership differs.

Suggested Citation

  • A. Melih Küllü & Doug Dyer & Gokhan Yilmaz & Zenu Sharma, 2019. "The impact of business group affiliation on stock price informativeness: Evidence from an emerging market," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 28(2), pages 187-212, May.
    • Handle: RePEc:wly:finmar:v:28:y:2019:i:2:p:187-212
    DOI: 10.1111/fmii.12111
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/fmii.12111
    Download Restriction: no
    File URL: https://libkey.io/10.1111/fmii.12111?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Tarun Khanna & Jan W. Rivkin, 2001. "Estimating the performance effects of business groups in emerging markets," Strategic Management Journal, Wiley Blackwell, vol. 22(1), pages 45-74, January.
    2. Halit Gonenc & Ozgur B. Kan & Ece C. Karadagli, 2007. "Business Groups and Internal Capital Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(2), pages 63-81, April.
    3. West, Kenneth D, 1988. "Dividend Innovations and Stock Price Volatility," Econometrica, Econometric Society, vol. 56(1), pages 37-61, January.
    4. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
    5. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    6. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    7. Weinstein, David E & Yafeh, Yishay, 1995. "Japan's Corporate Groups: Collusion or Competitive? An Empirical Investigation of Keiretsu Behavior," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 359-376, December.
    8. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    9. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    10. repec:bla:jfinan:v:59:y:2004:i:1:p:65-105 is not listed on IDEAS
    11. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    12. Bianco, Magda & Nicodano, Giovanna, 2006. "Pyramidal groups and debt," European Economic Review, Elsevier, vol. 50(4), pages 937-961, May.
    13. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    14. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    15. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    16. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    17. Love, Inessa & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2007. "Trade credit and bank credit: Evidence from recent financial crises," Journal of Financial Economics, Elsevier, vol. 83(2), pages 453-469, February.
    18. Dasgupta, Sudipto & Gan, Jie & Gao, Ning, 2010. "Transparency, Price Informativeness, and Stock Return Synchronicity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(5), pages 1189-1220, October.
    19. Chang, Sea Jin & Choi, Unghwan, 1988. "Strategy, Structure and Performance of Korean Business Groups: A Transactions Cost Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 141-158, December.
    20. Artyom Durnev & Randall Morck & Bernard Yeung & Paul Zarowin, 2003. "Does Greater Firm‐Specific Return Variation Mean More or Less Informed Stock Pricing?," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 797-836, December.
    21. Meyer, Margaret & Milgrom, Paul & Roberts, John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, Spring.
    22. Tarun Khanna & Yishay Yafeh, 2007. "Business Groups in Emerging Markets: Paragons or Parasites?," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 331-372, June.
    23. Heitor V. Almeida & Daniel Wolfenzon, 2006. "A Theory of Pyramidal Ownership and Family Business Groups," Journal of Finance, American Finance Association, vol. 61(6), pages 2637-2680, December.
    24. Almeida, Heitor & Park, Sang Yong & Subrahmanyam, Marti G. & Wolfenzon, Daniel, 2011. "The structure and formation of business groups: Evidence from Korean chaebols," Journal of Financial Economics, Elsevier, vol. 99(2), pages 447-475, February.
    25. Gorton, Gary & Pennacchi, George, 1990. "Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
    26. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    27. Pankaj Ghemawat & Tarun Khanna, 1998. "The Nature of Diversified Business Groups: A Research Design and Two Case Studies," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 35-61, March.
    28. Manos, Ronny & Murinde, Victor & Green, Christopher J., 2007. "Leverage and business groups: Evidence from Indian firms," Journal of Economics and Business, Elsevier, vol. 59(5), pages 443-465.
    29. Tarun Khanna & Yishay Yafeh, 2005. "Business Groups and Risk Sharing around the World," The Journal of Business, University of Chicago Press, vol. 78(1), pages 301-340, January.
    30. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    31. Chan, Kalok & Hameed, Allaudeen, 2006. "Stock price synchronicity and analyst coverage in emerging markets," Journal of Financial Economics, Elsevier, vol. 80(1), pages 115-147, April.
    32. Devos, Erik & Hao, Wei & Prevost, Andrew K. & Wongchoti, Udomsak, 2015. "Stock return synchronicity and the market response to analyst recommendation revisions," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 376-389.
    33. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    34. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
    35. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    36. Khanna, Tarun & Thomas, Catherine, 2009. "Synchronicity and firm interlocks in an emerging market," Journal of Financial Economics, Elsevier, vol. 92(2), pages 182-204, May.
    37. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 33-60.
    38. James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, February.
    39. Gul, Ferdinand A. & Kim, Jeong-Bon & Qiu, Annie A., 2010. "Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China," Journal of Financial Economics, Elsevier, vol. 95(3), pages 425-442, March.
    40. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-1280, December.
    41. Heitor Almeida & Chang‐Soo Kim & Hwanki Brian Kim, 2015. "Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis," Journal of Finance, American Finance Association, vol. 70(6), pages 2539-2586, December.
    42. Kim, Ryoonhee, 2016. "Financial Weakness and Product Market Performance: Internal Capital Market Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(1), pages 307-332, February.
    43. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. "Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, vol. 52(1), pages 135-160, March.
    44. Kee‐Hong Bae & Jun‐Koo Kang & Jin‐Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
    45. B. Yurtoglu, 2000. "Ownership, Control and Performance of Turkish Listed Firms," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(2), pages 193-222, June.
    46. Radhakrishnan Gopalan & Vikram Nanda & Amit Seru, 2014. "Internal Capital Market and Dividend Policies: Evidence From Business Groups," The Review of Financial Studies, Society for Financial Studies, vol. 27(4), pages 1102-1142.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. A. Melih Küllü & Steven Raymar, 2018. "Groups, Pricing, and Cost of Debt: Evidence from Turkey," JRFM, MDPI, vol. 11(1), pages 1-31, March.
    2. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, September.
    3. Randall Morck, 2011. "Finance and Governance in Developing Economies," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 375-406, December.
    4. Faccio, Mara & Morck, Randall & Deniz Yavuz, M., 2021. "Business groups and the incorporation of firm-specific shocks into stock prices," Journal of Financial Economics, Elsevier, vol. 139(3), pages 852-871.
    5. Basu, Debarati & Sen, Kaustav, 2015. "Financial decisions by business groups in India: Is it “fair and square”?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(2), pages 121-137.
    6. Biswajit Ghose, 2017. "Impact of Business Group Affiliation on Capital Structure Adjustment Speed: Evidence from Indian Manufacturing Sector," Emerging Economy Studies, International Management Institute, vol. 3(1), pages 54-67, May.
    7. Biswajit Ghose & Kailash Chandra Kabra, 2018. "Dynamic Capital Structure Adjustments and Business Group Affiliations: Indian Evidence," Business Perspectives and Research, , vol. 6(1), pages 27-41, January.
    8. Viswanathan Nagarajan & Pitabas Mohanty & Apalak Khatua, 2023. "Financing effects of corporate diversification: A review," Review of Managerial Science, Springer, vol. 17(7), pages 2555-2585, October.
    9. Joseph P. H. Fan & Li Jin & Guojian Zheng, 2016. "Revisiting the Bright and Dark Sides of Capital Flows in Business Groups," Journal of Business Ethics, Springer, vol. 134(4), pages 509-528, April.
    10. Nan Jia & Jing Shi & Yongxiang Wang, 2013. "Coinsurance Within Business Groups: Evidence from Related Party Transactions in an Emerging Market," Management Science, INFORMS, vol. 59(10), pages 2295-2313, October.
    11. Ronald W. Masulis & Peter K. Pham & Jason Zein, 2020. "Family Business Group Expansion Through IPOs: The Role of Internal Capital Markets in Financing Growth While Preserving Control," Management Science, INFORMS, vol. 66(11), pages 5191-5215, November.
    12. Tarun Khanna & Yishay Yafeh, 2007. "Business Groups in Emerging Markets: Paragons or Parasites?," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 331-372, June.
    13. Boubaker, Sabri & Mansali, Hatem & Rjiba, Hatem, 2014. "Large controlling shareholders and stock price synchronicity," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 80-96.
    14. Chandera, Yane & Utama, Cynthia Afriani & Husodo, Zaäfri Ananto & Setia-Atmaja, Lukas, 2018. "The co-insurance effect hypothesis and the cost of bank loans: Evidence from Indonesian pyramidal business groups," Global Finance Journal, Elsevier, vol. 37(C), pages 100-122.
    15. Domenico Scalera & Alberto Zazzaro, 2009. "Do Inter-Firm Networks Make Access to Finance Easier? Issues and Empirical Evidence," Mo.Fi.R. Working Papers 25, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    16. Byun, Hae-Young & Choi, Sunhwa & Hwang, Lee-Seok & Kim, Robert G., 2013. "Business group affiliation, ownership structure, and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 311-331.
    17. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    18. Panagiotis Avramidis & Ioannis Asimakopoulos & Dimitris Malliaropulos & Nickolaos G. Travlos, 2017. "Group affiliation in periods of credit contraction and bank’s reaction: evidence from the Greek crisis," Working Papers 237, Bank of Greece.
    19. Bena, Jan & Ortiz-Molina, Hernán, 2013. "Pyramidal ownership and the creation of new firms," Journal of Financial Economics, Elsevier, vol. 108(3), pages 798-821.
    20. Carney, Michael & Estrin, Saul & Van Essen, Marc & Shapiro, Daniel, 2017. "Business groups reconsidered: beyond paragons and parasites," LSE Research Online Documents on Economics 87340, London School of Economics and Political Science, LSE Library.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:finmar:v:28:y:2019:i:2:p:187-212. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.