A Reexamination of Tunneling and Business Groups: New Data and New Methods

47 Pages Posted: 28 Feb 2010 Last revised: 26 Jan 2012

See all articles by Jordan I. Siegel

Jordan I. Siegel

University of Michigan

Prithwiraj Choudhury

Harvard University - Business School (HBS)

Date Written: January 23, 2012

Abstract

One of the most rigorous methodologies in the corporate governance literature uses firms’ reactions to industry shocks to characterize the quality of governance. This methodology can produce the wrong answer unless one considers the ways firms compete. Because macro-level shocks reverberate differently at the firm level depending on whether a firm has a cost structure that requires significant adjustment, the quality of governance can only be elucidated accurately analyzing a firm’s business strategy and their corporate governance. These differences can help one determine whether the fruits of a positive macro-level shock have been expropriated by insiders. Using the example of Indian firms, we show that an influential finding is reversed when these differences are considered. We further argue that the conventional wisdom about tunneling and business groups will need to be reformulated in light of the data, methodology, and findings presented here.

Suggested Citation

Siegel, Jordan I. and Choudhury, Prithwiraj, A Reexamination of Tunneling and Business Groups: New Data and New Methods (January 23, 2012). Harvard Business School Strategy Unit Working Paper No. 10-072. Available at SSRN: https://ssrn.com/abstract=1560764 or http://dx.doi.org/10.2139/ssrn.1560764

Jordan I. Siegel (Contact Author)

University of Michigan ( email )

Ann Arbor, MI
United States

Prithwiraj Choudhury

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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