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

See all articles by Tarun Khanna

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

Date Written: May 7, 1998

Abstract

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

Khanna, Tarun and Palepu, Krishna, Policy Shocks, Market Intermediaries, and Corporate Strategy: 'The Evolution of Business Groups in Chile and India' (May 7, 1998). Harvard Business School Working Paper, Available at SSRN: https://ssrn.com/abstract=97809 or http://dx.doi.org/10.2139/ssrn.97809

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 )

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