Is Group Affiliation Profitable in Developed Countries? Belgian Evidence

Posted: 28 Oct 2008

See all articles by An Buysschaert

An Buysschaert

Vrije Universiteit Brussel (VUB) - Micro-economics for Profit and Non Profit Sector (MICE)

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Marc Jegers

Free University of Brussels (VUB) - Micro-Economics for Profit and Non Profit Sector (MICE)

An Rommens

University of Antwerp

Multiple version iconThere are 2 versions of this paper

Date Written: October, 28 2008

Abstract

It is fairly well established that business group affiliation can compensate for relatively weak institutions in emerging markets, and in Japan. However, business groups are also common in the EU, and there have not yet been any studies of business group affiliation and firm performance in the EU. Consequently, we investigate how business group affiliation affects firm performance in Belgium. We find that operating profitability of group companies is significantly lower than that of stand-alone companies, while group companies have more volatile profits than stand-alone companies. Operating profitability of group companies does not depend on the extent of group diversification. Internal capital markets transfer funds from good performers to poorly performing group companies. The impact of group affiliation on profitability does not depend on group age or group ownership. Our study is, to the best of our knowledge, the first to investigate how affiliation with a business group affects company performance in a developed country other than Japan. The results raise the question why business groups endure in so many developed countries with good investor protection and well-developed capital markets. Some explanations proposed in the literature are not confirmed. Our study offers insights to policy makers and practitioners on the value and the role of business groups in developed countries. The results raise doubts about the value of these groups in such countries, and suggest that policy makers may want to consider dismantling business groups in EU countries.

Keywords: business groups, profitability, profit volatility, developed countries, internal capital markets

JEL Classification: G30

Suggested Citation

Buysschaert, An and Deloof, Marc and Jegers, Marc and Rommens, An, Is Group Affiliation Profitable in Developed Countries? Belgian Evidence (October, 28 2008). Corporate Governance: An International Review, Vol. 16, No. 6. Available at SSRN: https://ssrn.com/abstract=1291128

An Buysschaert

Vrije Universiteit Brussel (VUB) - Micro-economics for Profit and Non Profit Sector (MICE) ( email )

Brussels
Belgium
+32-2-629 21 18 (Phone)
+32-2-629 20 60 (Fax)

Marc Deloof (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Marc Jegers

Free University of Brussels (VUB) - Micro-Economics for Profit and Non Profit Sector (MICE) ( email )

Brussels
Belgium
+32-2-629 21 13 (Phone)
+32-2-629 22 82 (Fax)

An Rommens

University of Antwerp ( email )

Prinsstraat 13
Antwerpen, B-2020
Belgium

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