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Business groups and profit redistribution : a boon or bane for firms

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Author Info
George, R.
Kabir, M.R.
Douma, S. (Tilburg University, Center for Economic Research)
Abstract

This study investigates how profit redistribution affects the performance of firms affiliated to business groups. It shows that inefficient profit redistribution causes group-affiliated firms to perform poorly relative to independent firms. This underperformance persists even after controlling for other explanations such as diversification and resource transfers to unlisted firms. The study also shows that profit redistribution is more pronounced for groups of larger size and greater corporate control. The results of the study lend support for the inefficient profit redistribution explanation of the 'business group discount'.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 124.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:2004124

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G3 - Financial Economics - - Corporate Finance and Governance

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