Growth and persistence of business groups in emerging markets: towards solving the puzzle

Description

Business groups have proved remarkably resilient. Their presence across diverse institutional contexts, their long histories, and their persistence in emerging economies despite widespread institutional changes suggest a strong ability to adapt. In this study, leveraging large-scale pro-market reforms in India, we seek to address a long-standing question: why do business groups persist? We argue that the structure of business groups—particularly the presence of a dominant controlling owner—enables them to adapt effectively to institutional change. By mitigating issues such as risk aversion and managerial myopia, which are often associated with the separation of ownership and control, affiliated firms are better positioned to exploit the opportunities created by pro-market reforms. Furthermore, we suggest that active core owners provide affiliated firms with access to a diverse range of resources through their ownership across multiple firms, thereby expanding the scope of available opportunities. Finally, we argue that improvements in corporate governance norms in emerging economies, driven by institutional reforms, enhance the value-adding potential of such active core owners. Empirical analysis based on a sample of Indian group-affiliated and standalone firms over the period 2001–2010 supports our arguments.

Publication Date

1-1-2012

DOI

10.5465/AMBPP.2012.93

Publisher

Academy of Management

Keywords

Business Groups, Domestic Firms, Entrepreneurship, Emerging markets

Conference

72nd Annual Meeting of the Academy of Management: 3-7 August, 2012, Boston, Massachusetts

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