Group Affiliation and Firm Risk: Evidence from Stock Returns on Indian Companies

30 Pages Posted: 23 Feb 2005

See all articles by Robert Lensink

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Remco van der Molen

University of Groningen - Department of Finance & Accounting

Date Written: February 2005

Abstract

This paper analyzes the effect of group affiliation on the riskiness of Indian companies. We show that the large difference in stock returns on group affiliates and on stand-alone companies cannot be explained by a standard multifactor model. However, the common variation in the returns on group company stocks suggests that there is a group affiliation factor in Indian stock returns. When we control for this additional factor, we find that about fifty percent of the underperformance of group companies can be explained by their lower risk. We also find evidence suggesting that the group affiliation factor is related to financial distress.

Keywords: Business groups, risk, firm value, stock returns

JEL Classification: G32, G34, G12

Suggested Citation

Lensink, Robert and van der Molen, Remco, Group Affiliation and Firm Risk: Evidence from Stock Returns on Indian Companies (February 2005). Available at SSRN: https://ssrn.com/abstract=671481 or http://dx.doi.org/10.2139/ssrn.671481

Robert Lensink (Contact Author)

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Remco Van der Molen

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

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