COMPLEX PATTERNS OF VERTICAL INTEGRATION IN THE FOREST PRODUCTS INDUSTRY - SYSTEMATIC AND BANKRUPTCY RISKS

Empirical studies have found an association between vertical integration and low risk. However, other work has suggested that a complex pattern of vertical integration reduces ability to adapt to environmental turbulence and hence increases risk. This study examined the relationship between vertical integration and risk to shareholders (systematic risk) and creditors (bankruptcy risk) in the forest products industry. The results indicate that fully integrated firms have higher systematic and bankruptcy risk in turbulent product-market environments. In addition, envirommental growth was associated with low creditor risk and environmental turbulence with high shareholder risk. These associations suggest the possibility of firms' using diversification strategies to shift risk between shareholders and creditors.