The Knock-On Effect in Business Group: Evidence from Korean Chaebols Credit Rating Changes

Abstract

We examine the knock-on effect of credit rating changes in Korean Chaebol. We show that credit rating changes of chaebol-affiliated firm share the effect of credit rating change with related affiliates because: (1) chaebol affiliates share their internal capital markets and (2) chaebol affiliates are bounded together by cross-holdings. We conclude that impact of credit rating change of chaebol-affiliated firm spills over to other affiliates included in the same chaebols, and cross-holdings may determine the extent of the knock-on effect.