The Performance of Business Group Firms During Institutional Transition: A Longitudinal Study of Indian Firms

SMG Working Paper No. 25/2008

45 Pages Posted: 29 Jul 2008

See all articles by Vikas Kumar

Vikas Kumar

The University of Sydney Business School

Torben Pedersen

Copenhagen Business School - Department of Strategic Management and Globalization

Alessandro Zattoni

University of Bocconi - Strategic and Entrepreneurial Management

Date Written: July, 29 2008

Abstract

Question/Issue: Institutional and transaction costs theories highlight the idea that group affiliated firms outperform unaffiliated firms in emerging economies. The persistence of superior performance for group affiliated firms is, however, questioned by the fast and recent development of markets and institutions in these countries. In this article, we explore this link between firm performance and the evolution of institutional environment. Research Findings/Insights: The setting of the empirical investigation is India in the post-reform era (post 1990). We test for effects of business group affiliation on firm performance over a 17 year time period from 1990 to 2006. Our findings show that (i) the performance benefits of group affiliation erode with the evolution of the institutional environment; (ii) older affiliated firms are better able to cope with institutional transition than younger affiliated firms; (iii) service-sector affiliated firms are better able to cope with institutional transition than manufacturing-sector affiliated firms. Theoretical/Academic Implications: Our findings both support the institution - and transaction costs-based theory of business groups, and extends it by incorporating a dynamic and longitudinal component. They also demonstrate - in line with recent works - that the benefits of group membership differ for different types of member firms. Practitioner/Policy Implications: The article has implications for both managers and policy makers. Managers of business groups should timely adapt their strategy to the evolution of the institutional environment. Policy makers should, instead, devote attention to the consequences of their policies because they may undermine the efficiency of large national companies.

Suggested Citation

Kumar, Vikas and Pedersen, Torben and Zattoni, Alessandro, The Performance of Business Group Firms During Institutional Transition: A Longitudinal Study of Indian Firms (July, 29 2008). SMG Working Paper No. 25/2008, Available at SSRN: https://ssrn.com/abstract=1184851 or http://dx.doi.org/10.2139/ssrn.1184851

Vikas Kumar

The University of Sydney Business School ( email )

Storie Dixson Building H10
The University of Sydney
Sydney, NSW 2006
Australia
+ 61 2 9351 6438 (Phone)
+ 61 2 9036 5378 (Fax)

HOME PAGE: http://www.econ.usyd.edu.au/staff/vikask

Torben Pedersen (Contact Author)

Copenhagen Business School - Department of Strategic Management and Globalization ( email )

Porcelænshaven 24
Frederiksberg, 2000
Denmark
+45 3815 3030 (Phone)
+45 3815 3035 (Fax)

HOME PAGE: http://www.cbs.dk/staff/tp

Alessandro Zattoni

University of Bocconi - Strategic and Entrepreneurial Management ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

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