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Author: Rosy Locorotondo
Publisher:
ISBN:
Category :
Languages : en
Pages : 21
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Book Description
In contrast to the popular assumption of independence made in the classic corporate finance literature, many companies around the world are linked through common ownership to form business groups. This paper reviews the growing literature on the consequences of business group membership. The presence of internal capital markets within the group may lead to an increased availability of financial resources and more optimal investment allocation due to reduced asymmetric information. Moreover, intragroup guarantees and a group reputation effect may also improve the access to external financing, and group members can engage in risk sharing and risk reducing activities. The existence of business groups may, however, also have negative effects, including expropriation of wealth from minority shareholders, support of inefficient affiliates, political rent-seeking and excessive use of market power. The trade-off between these costs and benefits leads to mixed empirical evidence on the impact of group affiliation on profitability and innovation.
Author: Rosy Locorotondo
Publisher:
ISBN:
Category :
Languages : en
Pages : 21
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Book Description
In contrast to the popular assumption of independence made in the classic corporate finance literature, many companies around the world are linked through common ownership to form business groups. This paper reviews the growing literature on the consequences of business group membership. The presence of internal capital markets within the group may lead to an increased availability of financial resources and more optimal investment allocation due to reduced asymmetric information. Moreover, intragroup guarantees and a group reputation effect may also improve the access to external financing, and group members can engage in risk sharing and risk reducing activities. The existence of business groups may, however, also have negative effects, including expropriation of wealth from minority shareholders, support of inefficient affiliates, political rent-seeking and excessive use of market power. The trade-off between these costs and benefits leads to mixed empirical evidence on the impact of group affiliation on profitability and innovation.
Author: Borja Larrain
Publisher:
ISBN:
Category :
Languages : en
Pages : 72
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Book Description
We propose a novel identification strategy for estimating the effects of business group affiliation. We study two-firm business groups, some of which split up during the sample period, leaving some firms as stand-alones. We instrument for stand-alone status using shocks to the industry of the other group firm. We find that firms that become stand-alone reduce leverage and investment. Consistent with collateral cross-pledging, the effects are more pronounced when the other firm had high tangibility. Consistent with capital misallocation in groups, the reduction in leverage is stronger in firms that had low (high) profitability (leverage) relative to industry peers.
Author: Anna Lamin
Publisher:
ISBN:
Category :
Languages : en
Pages : 400
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Book Description
Author: Anna Lamin
Publisher: ProQuest
ISBN: 9780549115250
Category :
Languages : en
Pages : 196
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Book Description
Author: Rajagopal,
Publisher: IGI Global
ISBN: 1522548327
Category : Business & Economics
Languages : en
Pages : 341
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Book Description
In an ever-expanding economic world, the need for new businesses with the ability to create and evolve simultaneously is paramount to ensure success. Hybrid business models are essential to foster growth and promote prosperity. Start-Up Enterprises and Contemporary Innovation Strategies in the Global Marketplace is a critical scholarly resource that examines the relationship between worldwide industry and the need for up-to-date technologies and methods to support such an inclusive market. Featuring coverage on a diverse range of topics such as corporate social responsibility, collaborator empowerment, and start-up enterprise ecosystems, this book is geared toward managers, researchers, and students seeking current research on the interaction between modernization and the expansion of markets to accommodate worldwide industry.
Author: Pascal Nguyen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This article examines the role of keiretsu (i.e. business group) affiliation on the risk-taking of Japanese firms. We find that total risk, measured by firm-level stock price volatility, is not significantly affected by keiretsu membership. The reason is that affiliated firms are characterized by lower idiosyncratic risk along with higher systematic risk. However, idiosyncratic risk varies across business groups and appears to depend upon the firm's inclination towards its group. In contrast, the higher systematic risk of group affiliates is significant for each keiretsu and every degree of group inclination. Moreover, this result remains after adjusting risk for firm characteristics and industry effects. Hence, the consequence of group affiliation may more accurately be described by higher systematic risk. This result could reflect the weaker competitive position of keiretsu affiliates.
Author: Paul M. Guest
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
An important aspect of China's economic reforms has been an ambitious policy to develop a 100 or so large, internationally competitive business groups. Very little is known about these national champion groups or the benefits to subsidiary firms of belonging to them. This study, building from insights and methods used in existing literature, examines the performance of subsidiaries affiliated to China's national champion groups. Our results find that they perform comparatively well. We discuss possible reasons for this finding and comment more generally on the important role that business groups now play in China's reform and development.
Author: Narahari Hansoge
Publisher:
ISBN:
Category :
Languages : en
Pages : 63
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Book Description
In this paper, we attempt to understand whether business group affiliation continues to create value with improvements in institutional environment, especially with increased product market competition. This question comes at a time when there is growing awareness that business groups dominate product markets even in developed economies (Boutin et al., 2013) and their existence is not limited to poor institutional environments (Khanna and Palepu, 2000). Such evidence calls for revisiting the Institutional Voids theory that attributes business group dominance to lack of institutional development. Our paper aims to extend this stream of the literature by focusing on how business groups respond to institutional development. The question that is still wide open is how business groups transform their structure and continue to dominate the corporate landscape. Given that most of the emerging economies are going through significant institutional development and domestic business groups are transforming into global leaders, a deeper understanding of the business group model dominance and corresponding consumer welfare is much needed. We develop a simple theoretical model and set up a novel empirical methodology to examine this issue. Using Indian data of around 36,500 firm year observations spanning 23 years (1990-2012), we find that 1) Business group affiliation continues to create value against standalone firms even with institutional development. However, affiliation gains are relatively lower in the post-reform regime. 2) Business groups that expand through horizontal integration lose market value in the post-reform regime. This result is consistent with our theoretical model. 3) In the post-reform regime, vertical integration increases business group affiliation value only when business groups have deep pockets. This is consistent with Boutin et.al. (2013). In other words, deep pockets are required more when competition is high and not when it is low as predicted by the Institutional Voids Hypothesis. Our overall results suggests that, as markets develop, business group expansion strategy and their capacity to fund from their deep pockets become more critical for their sustainability. Our results highlight the need to look beyond Institutional Voids theory for existence of business groups.
Author: Manohar Singh
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
To understand the performance implications of corporate strategies as conditioned by business group affiliations, we analyze the relationship between corporate diversification and performance for 889 Indian firms. We find that diversified firms perform significantly worse than focused firms and that there exists a significant negative relationship between the degree of diversification and firm performance. A comparative analysis of firms affiliated with Indian business groups and those affiliated with MNCs indicates that sources of negative impact of diversification on performance are conditioned by the nature of a firm's affiliation. For multinational affiliates, diversification appears to be associated with poor asset quality and asset management, which is an indicator of possible agency conflict. For domestic business group affiliates, diversification appears to generate cost inefficiencies leading to poor performance.
Author: Hae-Young Byun
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper examines the relation between business group affiliation and the cost of debt capital. The co-insurance effect associated with business groups can reduce the cost of debt, while expropriation by controlling shareholders can raise the cost of debt. We find that firms affiliated with major Korean business groups (i.e., chaebols) enjoy a substantially lower cost of public debt than do independent firms, consistent with the co-insurance argument. We also examine several factors that influence the relation between group affiliation and the cost of debt, including a firm's uncertainty about the future payoffs of debtholders, pledgeable income, group-level resources, and position in the group structure. The results are all consistent with the co-insurance explanation. Our study highlights that the role of business groups in the debt market is distinct from the role of ownership structure.
