Ties that Bind Business Groups: Evidence from an Emerging Market
57 Pages Posted: 21 Aug 2000
Date Written: August 2000
We conceive of emerging market business groups as tight networks of relationships embedded within the looser network that constitutes the economy. Using data from Chile, we identify the social and economic ties that robustly delineate groups from the larger economy: owner overlap, indirect equity ties, and director interlocks. Contrary to earlier field-based and theoretical studies, neither family bonds nor direct equity interlocks strongly distinguish groups. Non-equity relationships affect expected economic returns and are not mere vestiges of group history. The analysis sheds light on what determines the strength of ties and how boundedly rational individuals simplify complex, inter-firm networks.
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