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Policy Shocks, Market Intermediaries, and Corporate Strategy: The Evolution of Business Groups in Chile and India

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  • Tarun Khanna
  • Krishna Palepu
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    Abstract

    Numerous countries have undergone rapid transitions in their economic environments. Yet, little is known about firms' 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 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 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 accounting and stock-market performance 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 transaction costs in primary markets, can explain these findings. Copyright (c) 1999 Massachusetts Institute of Technology.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 8 (1999)
    Issue (Month): 2 (06)
    Pages: 271-310

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    Handle: RePEc:bla:jemstr:v:8:y:1999:i:2:p:271-310

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    Cited by:
    1. Fernando Lefort & Eduardo Walker, 2000. "Ownership And Capital Structure Of Chilean Conglomerates:Facts And Hypotheses For Governance," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 3(1), pages 3-27.
    2. Rakesh Basant & Karthik Dhandapani, 2010. "Measuring Institutional Relatedness," Working Papers id:2543, eSocialSciences.
    3. Pinelopi K. Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2008. "Multi-product Firms and Product Turnover in the Developing World: Evidence from India," NBER Working Papers 14127, National Bureau of Economic Research, Inc.
    4. Cheong, Kwang Soo & Choo, Kineung & Lee, Keun, 2010. "Understanding the behavior of business groups: A dynamic model and empirical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 141-152, November.
    5. Andonova Veneta & Zuleta Hernando, 2009. "Beyond Moral Hazard: The Effect of Firm-Level Compensation Strategies on Economic Conflict," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 15(1), pages 1-25, October.
    6. Peter G. Klein, 1997. "Were the Acquisitive Conglomerates Inefficient?," Industrial Organization 9711001, EconWPA, revised 04 Feb 2002.
    7. Lee, Seung-Hyun & Makhija, Mona & Paik, Yongsun, 2008. "The value of real options investments under abnormal uncertainty: The case of the Korean economic crisis," Journal of World Business, Elsevier, vol. 43(1), pages 16-34, January.
    8. Jürgen Wandel, 2011. "Business groups and competition in post-Soviet transition economies: The case of Russian “agroholdings”," The Review of Austrian Economics, Springer, vol. 24(4), pages 403-450, December.
    9. Raja Kali & Jayati Sarkar, 2005. "Diversification, propping and monitoring: Business groups, firm performance and the Indian economic transition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2005-006, Indira Gandhi Institute of Development Research, Mumbai, India.
    10. Ricart, Joan E. & Enright, Michael J. & Ghemawat, Pankaj & Khanna, Tarun & Hart, Stuart L., 2003. "New frontiers in international strategy," IESE Research Papers D/532, IESE Business School.
    11. Yishay Yafeh, 2003. "An International Perspective of Corporate Groups and Their Prospects," NBER Chapters, in: Structural Impediments to Growth in Japan, pages 259-284 National Bureau of Economic Research, Inc.
    12. Belderbos, René & Wakasugi, Ryuhei & Zou, Jianglei, 2012. "Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates," Journal of the Japanese and International Economies, Elsevier, vol. 26(2), pages 187-200.
    13. Jenifer Piesse & Roger Strange & Fahad Toonsi, 2012. "Is there a distinctive MENA model of corporate governance?," Journal of Management and Governance, Springer, vol. 16(4), pages 645-681, November.
    14. Yishay Yafeh, 2002. "An International Perspective of Japan's Corporate Groups and their Prospects," NBER Working Papers 9386, National Bureau of Economic Research, Inc.
    15. Belderbos, Rene & Wakasugi, Ryuhei & Zou, Jianglei, 2010. "Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates," MERIT Working Papers 066, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    16. Sumon Bhaumik & Pranab Kumar Das & Subal C. Kumbhakar, 2011. "Firm Investment & Credit Constraints in India, 1997 – 2006: A stochastic frontier approach," William Davidson Institute Working Papers Series wp1010, William Davidson Institute at the University of Michigan.
    17. del Sol, Patricio, 2002. "Responses to electricity liberalization: the regional strategy of a Chilean generator," Energy Policy, Elsevier, vol. 30(5), pages 437-446, April.

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