Product market competition and business groups in Korea

This study examines the effect of changes in product market competition on the stock returns of business groups, using the KORUS FTA as an exogenous shock and quasi-natural experiment. Based on a difference-in-difference-in-differences analysis we find that business groups have lower returns than independent firms when competition increases. Our results support the creative self-destruction hypothesis for stock returns and the entry threat channels related to business groups and product market competition. Thus, we identify an important link between product market competition, business groups, and stock returns.