1 The Role and Functioning of Business Groups in East Asia and Chile Stijn Claessens, Simeon Djankov and Leora Klapper 1 Abstract We compare group affiliation in seven East Asian countries and Chile, using data for more than 1,000 publicly traded firms. We document that 75% of listed firms are associated with groups in East Asia, but only 40% in Chile. We find evidence that group structures are used to diversify risks internally as firms’ market risk is influenced not only by own characteristicssuch as size, price/book ratiobut also by group characteristics, especially in Chile. There are costs to groups, however. For East Asian countries, we find that group structures are used by controlling owners to expropriate other shareholders. On balance, it appears that business groups are not beneficial to shareholders. 1 World Bank. The opinions expressed do not necessarily reflect those of the World Bank. We thank Tatiana Nenova, Gordon Phillips, Andrei Shleifer, and Rene Stulz for helpful suggestions, our discussant Salvador Valdes for useful comments, and Ying Lin for excellent research assistance.