IDEAS home Printed from https://ideas.repec.org/a/pch/abante/v3y2000i1p91-107.html
   My bibliography  Save this article

The Role And Functioning Of Business Groups In East Asia And Chile

Author

Listed:
  • STIJN CLAESSENS

    (World Bank)

  • SIMEON DJANKOV

    (World Bank)

  • LEORA KLAPPER1

    (World Bank)

Abstract

We compare group affiliation in seven East Asian countries and Chile, using data for more than 1,000 publicly traded firms. We document that 75 percent of listed firms in our East Asia sample are associated with business groups, but only 40 percent in Chile. We find evidence that group structures are used to diversify risks internally as firms’ market risk is influenced not only by own characteristics-such as size, price/book ratio-but also by group characteristics, especially in Chile. There are costs to groups, however. For East Asian countries, we find that group structures are used by controlling owners to expropriate other shareholders. On balance, it appears that business groups are not beneficial to shareholders.

Suggested Citation

  • Stijn Claessens & Simeon Djankov & Leora Klapper1, 2000. "The Role And Functioning Of Business Groups In East Asia And Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 3(1), pages 91-107.
    • Handle: RePEc:pch:abante:v:3:y:2000:i:1:p:91-107
    as

    Download full text from publisher

    File URL: http://www.abante.cl/files/ABT/Contenidos/Vol-3-N1/4%20Claessens.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. 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, April.
    3. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    4. K. Geert Rouwenhorst, 1999. "Local Return Factors and Turnover in Emerging Stock Markets," Journal of Finance, American Finance Association, vol. 54(4), pages 1439-1464, August.
    5. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    6. Claessens, Stijn & Djankov, Simeon & Klapper, Leora, 1999. "Resolution of corporate distress - evidence from East Asia's financial crisis," Policy Research Working Paper Series 2133, The World Bank.
    7. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    8. David S. Scharfstein, 1998. "The Dark Side of Internal Capital Markets II: Evidence from Diversified Conglomerates," NBER Working Papers 6352, National Bureau of Economic Research, Inc.
    9. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
    10. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    11. Karl V. Lins & Henri Servaes, 2002. "Is Corporate Diversification Beneficial in Emerging Market?," Financial Management, Financial Management Association, vol. 31(2), Summer.
    12. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luis H Gutiérrez & Carlos Pombo, 2005. "Corporate Valuation and Governance: Evidence from Colombia," Borradores de Investigación 2203, Universidad del Rosario.
    2. Giacinta Cestone & Chiara Fumagalli, 2003. "The Strategic Impact of Resource Flexibility in Business Groups," Working Papers 49, Barcelona School of Economics.
    3. Boutin, Xavier & Cestone, Giacinta & Fumagalli, Chiara & Pica, Giovanni & Serrano-Velarde, Nicolas, 2013. "The deep-pocket effect of internal capital markets," Journal of Financial Economics, Elsevier, vol. 109(1), pages 122-145.
    4. Luis H. Gutiérrez & Carlos Pombo, 2005. "Valuación y gobierno corporativo: elementos de juicio de Colombia," Research Department Publications 3217, Inter-American Development Bank, Research Department.
    5. Carlos Pombo & Luis H. Gutiérrez, 2007. "Corporate Governance and Firm Valuation in Colombia," Research Department Publications 4470, Inter-American Development Bank, Research Department.
    6. Giacomo Rodano & Emanuele Tarantino & Nicolas Serrano-Velarde, 2012. "Bankruptcy Law and the Cost of Banking Finance," Working Papers 1218, Oxford University Centre for Business Taxation.
    7. Jetley, Gaurav & Mondal, Shamim S., 2015. "Rights issues and creeping acquisitions in India," Emerging Markets Review, Elsevier, vol. 23(C), pages 68-95.
    8. 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.
    9. Silva, Francisca & Majluf, Nicolas & Paredes, Ricardo D., 2006. "Family ties, interlocking directors and performance of business groups in emerging countries: The case of Chile," Journal of Business Research, Elsevier, vol. 59(3), pages 315-321, March.
    10. Carlos Pombo & Luis H. Gutiérrez, 2007. "Gestión empresarial y valuación de empresas en Colombia," Research Department Publications 4471, Inter-American Development Bank, Research Department.
    11. Fernando Lefort & Eduardo Walker, 2000. "Corporate Governance: Challenges For Latin America," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 2(2), pages 99-111.
    12. Giacinta Cestone & Chiara Fumagalli, 2003. "Winner-Picking or Cross-Subsidization? The Strategic Impact of Resource Flexibility in Business Groups," CSEF Working Papers 93, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Piruna Polsiri & Kingkarn Sookhanaphibarn, 2009. "Corporate Distress Prediction Models Using Governance and Financial Variables: Evidence from Thai Listed Firms during the East Asian Economic Crisis," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 5(2), pages 273-304, July.
    3. Jose Manuel Campa & Simi Kedia, 2002. "Explaining the Diversification Discount," Journal of Finance, American Finance Association, vol. 57(4), pages 1731-1762, August.
    4. Mitton, Todd, 2002. "A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 64(2), pages 215-241, May.
    5. Claessens, Stijn & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1999. "Corporate diversification in East Asia : the role of ultimate ownership and group affiliation," Policy Research Working Paper Series 2089, The World Bank.
    6. Campa, Jose M. & Chang, P. H. Kevin & Refalo, James F., 2002. "An options-based analysis of emerging market exchange rate expectations: Brazil's Real Plan, 1994-1999," Journal of Development Economics, Elsevier, vol. 69(1), pages 227-253, October.
    7. Lee, Kian-Tek & Hooy, Chee-Wooi & Hooy, Guat-Khim, 2012. "The value impact of international and industrial diversifications on public‐listed firms in Malaysia," Emerging Markets Review, Elsevier, vol. 13(3), pages 366-380.
    8. Domenico Scalera & Alberto Zazzaro, 2009. "Do Inter-Firm Networks Make Access to Finance Easier? Issues and Empirical Evidence," Mo.Fi.R. Working Papers 25, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    9. Hanazaki, Masaharu & 花崎, 正晴 & ハナザキ, マサハル & Liu, Qun & 劉, 群, 2003. "The Asian Crisis and Corporate Governance: Ownership Structure, Debt Financing, and Corporate Diversification," CEI Working Paper Series 2003-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    10. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165, Elsevier.
    11. Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2013. "Corporate diversification and firm value: a survey of recent literature," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(2), pages 187-215, June.
    12. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195.
    13. Dey, Tania & Banerjee, Rajabrata, 2011. "Can Corporate Diversification Promote Firm Value? A Survey," MPRA Paper 28928, University Library of Munich, Germany.
    14. Doukas, John A. & Kan, Ozgur B., 2008. "Investment decisions and internal capital markets: Evidence from acquisitions," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1484-1498, August.
    15. Billett, Matthew T. & Mauer, David C., 2000. "Diversification and the value of internal capital markets: The case of tracking stock," Journal of Banking & Finance, Elsevier, vol. 24(9), pages 1457-1490, September.
    16. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    17. Szu-Wen Chou, 2002. "Flattened Resource Allocation, Hierarch Design and the Boundaries of the Firm," Levine's Working Paper Archive 618897000000000056, David K. Levine.
    18. Wang, Yolanda Yulong, 2023. "Corporate diversification, investment efficiency and the business cycle11This work is supported by Shenzhen Humanities & Social Sciences Key Research Bases," Journal of Corporate Finance, Elsevier, vol. 78(C).
    19. Patrick Bolton & David S. Scharfstein, 1998. "Corporate Finance, the Theory of the Firm, and Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 95-114, Fall.
    20. Acharya, Viral V. & Amihud, Yakov & Litov, Lubomir, 2011. "Creditor rights and corporate risk-taking," Journal of Financial Economics, Elsevier, vol. 102(1), pages 150-166, October.

    More about this item

    Keywords

    Business Groups; Financial Risk; Chile; East Asia;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pch:abante:v:3:y:2000:i:1:p:91-107. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eduardo Walker (email available below). General contact details of provider: https://edirc.repec.org/data/eapuccl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.