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The Effects of Losing a Business Group Affiliation

Larrain, B., Sertsios, G. and Urzúa, F. ORCID: 0000-0003-4681-7684 (2018). The Effects of Losing a Business Group Affiliation. The Review of Financial Studies, doi: 10.1093/rfs/hhy120

Abstract

We propose a novel identification strategy for estimating the effects of business group affiliation. We study two-firm business groups, some of which split up during the sample period, leaving some firms as stand-alone firms. We instrument for stand-alone status using shocks to the industry of the other group firm. We find that firms that become stand-alone reduce leverage and investment. Consistent with collateral cross-pledging, the effects are more pronounced when the other firm had high tangibility. Consistent with capital misallocation in groups, the reduction in leverage is stronger in firms that had low (high) profitability (leverage) relative to industry peers.

Publication Type: Article
Additional Information: This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record [ Larrain, B., Sertsios, G. and Urzúa, F. (2018). The Effects of Losing a Business Group Affiliation. The Review of Financial Studies, doi: 10.1093/rfs/hhy120 is available online at: https://doi.org/10.1093/rfs/hhy120
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/21720
[img] Text - Accepted Version
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