Does Industrial Hierarchy Shape Financial Risk Transmission? Tier-Level Volatility Spillovers in the Japanese Automobile Industry

This paper examines the hierarchical organization of inter-firm volatility spillovers in the Japanese automobile industry and its transformation under extreme events, using daily data from 60 listed companies over January 2015 to December 2023, supplemented by six external market environment variables. Volatility spillovers are estimated via a LASSO-VAR-based connectedness approach, with an average spillover metric introduced into the between-group decomposition to eliminate mechanical bias from differences in group size and pair count. The results reveal a stable hierarchical spillover structure: both within-group and between-group transmission concentrate predominantly between original equipment manufacturers (OEMs) and Tier 1 suppliers, with adjacent-tier transmission significantly stronger than transmission that bypasses the intermediate tier. External variables exhibit pronounced tier-heterogeneous effects—the VIX exerts the strongest overall influence, exchange rates and energy prices are more sensitive for Tier 2 firms, and electric vehicle technology trends operate primarily through OEMs. Event-study analysis further shows that the 2015-2016 stock market downturn and COVID-19 produced broad-based amplification of within-industry spillovers, while the US-China trade conflict primarily altered the directional transmission structure by weakening OEM-dominated downward net transmission, and the Russia-Ukraine war predominantly strengthened channels directed at Tier 2 firms. These findings demonstrate that systemic risk in manufacturing is not indiscriminate but is embedded in the concrete hierarchical division of labor and industrial organization of the supply chain.