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Does group affiliation increase firm value for diversified groups?: New evidence from Indian companies

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  • Lensink, Robert
  • van der Molen, Remco
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    Abstract

    This article studies the impact of group affiliation on the performance of firms in India during 1996-2001, with the goal of determining whether the positive valuation effects of group affiliation depend on the degree of group diversification. The results from this study indicate that prior support for that hypothesis actually is fragile and highly influenced by extreme outliers. The authors also provide preliminary evidence for the hypothesis that group affiliation is particularly beneficial for firms that suffer financial constraints.

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    File URL: http://www.sciencedirect.com/science/article/B6VFG-4XRJX4X-2/2/3b4fb4ce61159facfd693fe918eb0e23
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 17 (2010)
    Issue (Month): 3 (June)
    Pages: 332-344

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    Handle: RePEc:eee:empfin:v:17:y:2010:i:3:p:332-344

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    Web page: http://www.elsevier.com/locate/jempfin

    Related research

    Keywords: Business groups Diversification Financing constraints India;

    References

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    1. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting Out Tunneling: An Application To Indian Business Groups," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 121-148, February.
    2. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    3. Tarun Khanna & Yishay Yafeh, 2007. "Business Groups in Emerging Markets: Paragons or Parasites?," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 331-372, June.
    4. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, 04.
    5. 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.
    6. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-33, March.
    7. Claessens, Stijn & Fan, Joseph P.H. & Lang, Larry H.P., 2006. "The benefits and costs of group affiliation: Evidence from East Asia," Emerging Markets Review, Elsevier, vol. 7(1), pages 1-26, March.
    8. Tirta Mursitama, 2006. "Creating relational rents: The effect of business groups on affiliated firms’ performance in Indonesia," Asia Pacific Journal of Management, Springer, vol. 23(4), pages 537-557, December.
    9. Chang, Sea Jin & Choi, Unghwan, 1988. "Strategy, Structure and Performance of Korean Business Groups: A Transactions Cost Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 141-58, December.
    10. Perotti, Enrico C. & Gelfer, Stanislav, 2001. "Red barons or robber barons? Governance and investment in Russian financial-industrial groups," European Economic Review, Elsevier, vol. 45(9), pages 1601-1617, October.
    11. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    12. Raja Kali & Jayati Sarkar, 2005. "Diversification, Propping and Monitoring - Business Groups, Firm Performance and the Indian Economic Transition," Finance Working Papers 22357, East Asian Bureau of Economic Research.
    13. Kee-Hong Bae & Jun-Koo Kang & Jin-Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
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    Cited by:
    1. Anaïs HAMELIN, 2013. "Does Size Matter? Firm And Business Group Size Influence On The Benefits Of Group Affiliation," Working Papers of LaRGE Research Center 2013-10, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    2. Thomas O'Connor & Thomas Flavin, 2013. "The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization," International Review of Finance, International Review of Finance Ltd., vol. 13(3), pages 383-405, 09.
    3. Thomas O'Connor, 2012. "Investability, Corporate Governance and Firm Value," Economics, Finance and Accounting Department Working Paper Series n223-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    4. Thomas O'Connor, 2014. "Legal bonding, investor recognition, and cross-listing premia in emerging markets," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 4(3), pages 209-239.
    5. Crisóstomo, Vicente Lima & López-Iturriaga, Félix Javier & Vallelado González, Eleuterio, 2014. "Nonfinancial companies as large shareholders alleviate financial constraints of Brazilian firm," Emerging Markets Review, Elsevier, vol. 18(C), pages 62-77.

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