Business Groups and Profit Redistribution: A Boon or Bane for Firms?
49 Pages Posted: 5 Jan 2005 Last revised: 1 Aug 2012
Date Written: September 1, 2008
This study examines the phenomenon of profit redistribution among group-affiliated firms and relates it with corporate performance. It finds that group-affiliated firms perform poorly relative to independent firms. More importantly, the study documents the possibility of inefficient profit redistribution causing group-affiliated firms to underperform. Profit redistribution is also documented to be more pronounced for groups of larger size and greater corporate control. The underperformance of affiliated firms persists even after controlling for other explanations such as diversification and resource transfers to unlisted firms. The results of the study lend support for the inefficient profit redistribution explanation of the 'business group discount'.
Keywords: Business groups, firm performance, profit redistribution, cross-subsidization, corporate governance
JEL Classification: G3, L2, M2
Suggested Citation: Suggested Citation