Business Groups and Risk Sharing around the World

Markets Finance ” conference (London Business School), and to the editor (Richard Green) and an anonymous referee for very helpful comments and suggestions. Several individuals assisted us with data collection, especially Chanhi Park with the Korean data, Liat Sack with the Israeli data, and Hideaki Miyajima with the prewar Japanese data. William Simpson contributed his invaluable econometric expertise, and Eli Enoch, Kathleen Ryan, James Schorr and Zamir Sivan assisted in assembling the database. Khanna thanks the Division of Research at HBS for financial support. This paper was revised while Yafeh was visiting the University of Oxford (St. Antony’s College) whose hospitality is gratefully acknowledged. All errors remain our own. Business Groups and Risk Sharing around the World We use a new database from fifteen emerging markets as well as from prewar and modern Japan to examine the popular view that business groups – ubiquitous in most emerging markets – facilitate risk sharing by smoothing the performance of affiliated firms. We replicate existing results on risk sharing by Japanese keiretsu, find evidence of risk sharing in some other countries (e.g. Korea, Thailand), and very limited evidence of “liquidity smoothing ” in one country, India. However, in most countries, our estimates of