Policy Shocks, Market Intermediaries, and Corporate Strategy: 'The Evolution of Business Groups in Chile and India'
Harvard Business School Working Paper
50 Pages Posted: 24 Jun 1998
Date Written: May 7, 1998
Numerous countries have undergone rapid transitions in their economic environments. Yet little is known about firm responses to such transitions. We use field-collected data to study the evolution of eighteen large and diversified business groups in Chile (1987-1997) and India (1990-1997). The chosen time periods correspond to significant deregulation in the primary markets in both countries. Conventional wisdom suggests that the intermediation roles played by business groups ought to decrease during these time periods. However, we find an increase in group scope, an increase in the strength of the social and economic ties that bind together group firms, an increase in self-reported intermediation attempts by the groups, and some evidence that these actions are associated with improvements in profitability of the group affiliates. We suggest that the slow development of market intermediaries, in a manner suggested by institutional economics, and the attendant lack of reduction in the transaction costs in primary markets, can explain these findings.
JEL Classification: L2
Suggested Citation: Suggested Citation