Business Groups and the Incorporation of Firm-specific Shocks into Stock Prices

Firm specific information has a damped effect on business group firms' stock prices. Business group affiliated firms' idiosyncratic stock returns are less responsive to idiosyncratic commodity price shocks than are the idiosyncratic returns of otherwise similar unaffiliated firms in the same country and commodity sensitive industry. Using global commodity shocks means we assess responses to common idiosyncratic shocks of the same magnitude, frequency, and observability. Further identification follows from difference-in-difference tests exploiting successful and matched-exogenously-failed control block transactions. We conclude that business group firms' stock prices provide less firm-specific information to capital providers and managers