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Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups

Posted: 14 Jul 1999  

Tarun Khanna

Harvard University - Strategy Unit

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

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Abstract

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

Suggested Citation

Khanna, Tarun and Palepu, Krishna, Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups. Journal of Finance. Available at SSRN: https://ssrn.com/abstract=167589

Tarun Khanna (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Boston, MA 02163
United States
617-495-6038 (Phone)
617-495-0355 (Fax)

Krishna Palepu

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
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United States
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617-496-7363 (Fax)

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=6527

Harvard University - David Rockefeller Center for Latin American Research ( email )

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Harvard Business Review ( email )

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HOME PAGE: http://hbr.org/authors/palepu

NBER ( email )

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HOME PAGE: http://www.nber.org/people/krishna_palepu

International Academy of Management ( email )

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