Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups
Harvard University - Strategy Unit
Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management
Journal of Finance
Emerging markets like India have poorly functioning institutions, leading to severe agency and information problems. Business groups in these markets have the potential to offer benefits to member firms, but they also have potential to destroy value. We analyze the performance of affiliates of diversified Indian business groups relative to unaffiliated firms. We find that accounting and stock market measures of firm performance initially decline with group diversification and subsequently increase once group diversification exceeds a certain level. Stock market measures suggest that, unlike U.S. conglomerates' lines of business, and similar to the affiliates of U.S. LBO associations, affiliates of the most diversified business groups outperform unaffiliated firms.
JEL Classification: G34
Date posted: July 14, 1999