This paper argues that groups reduce bankruptcy costs with respect not only to stand-alone units (thanks to coinsurance) but to conglomerates as well (thanks to corporate limited liability). This allows groups to save on contagion costs, thereby generating more value than conglomerates despite a...

This paper studies how tax shields of loss-making entities affect resource allocation within business groups. Evidence from a large international sample and a single-country regression discontinuity design suggests that groups avoid their member firms' defaults when tax shields from...