Business Groups: Panics, Runs, Organ Banks and Zombie Firms / Asli M. Colpan, Randall Morck.

Format:

Book

Author/Creator:

Colpan, Asli M.

Contributor:

National Bureau of Economic Research.

Morck, Randall.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29035.

NBER working paper series no. w29035

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

Business groups often contain banks or near banks that can protect group firms from economic shocks. A group bank subordinate to other group firms can become an "organ bank" that selflessly bails out distressed group firms and anticipates a government bailout. A group bank subordinating other group firms can extend loans to suppress their risk-taking to default risk, preserving risk-averse low-productivity zombie firms. Actual business groups can fall between these polar cases. Subordinated group banks magnify risk-taking; subordinating banks suppress risk-taking; yet both distortions promote business group firms' survival. Limiting intragroup income and risk shifting, severing banks from business groups, or dismantling business groups may mitigate both distortions; but also limits business groups' internal markets, thought important where external markets work poorly.

Notes:

Print version record

July 2021.