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The Effects of Business Group Affiliation: Evidence from Firms Being “Left Alone”
September 1, 2016Macro, Trade, and Finance Seminar Series

Speaker: Giorgo Sertsios is an Assistant Professor of Finance at Universidad de los Andes.  More »

Abstract: We study a sample of business groups composed of two firms in unrelated industries in the period 2009-2013. Some of these groups split up during this time, leaving firms as standalone. We instrument for the stand-alone status using shocks to the industry of the other firm in the group. We find that firms becoming standalone reduce their leverage and investment. This evidence is consistent with the idea that affiliation to a group eases credit constraints. The effects are more pronounced when the other firm has high tangibility, which is consistent with cross-pledging, and when the firm operates in a debt-dependent industry or in a country with low domestic credit. In line with “socialism” in business groups, firms more affected by becoming standalone are those with previous poor performance and high leverage relative to their industry peers, and firms with low Tobin’s Q relative to the other firm in the group. We do not find a significant effect of becoming standalone on performance.

Paper»

Last Updated: Aug 30, 2016

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Last Updated: Jul 27, 2015

Event Details
  • Date: September 1, 2016
  • Location: MC 4-100
  • Time: 12:30 – 2:00 pm
  • CONTACT: Shweta Mesipam
  • smesipam@worldbank.org



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