Korean business groups, chaebol, reduced operational risk in the aftermath of the 1997 Asian financial crisis by reducing (increasing) investment in risky (safe) member firms. Risk reduction was accompanied by capital reallocation from risky member firms to safe member firms through equity...

Understanding how defaults correlate across firms is a persistent concern in risk management. In this paper, we apply covariate-dependent copula models to assess the dynamic nature of credit risk dependence, which we define as "credit risk clustering". We also study the driving forces of the...