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Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups

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  • Tarun Khanna

    (Graduate School of Business Administration, Harvard University)

  • Krishna Palepu

    (Graduate School of Business Administration, Harvard University)

Abstract

Emerging markets like India have poorly functioning institutions, leading to severe agency and information problems. Business groups in these markets have the potential both to offer benefits to member firms, and to destroy value. We analyze the performance of affiliates of diversified Indian business groups relative to unaffiliated firms. We find that accounting and stock market measures of firm performance initially decline with group diversification and subsequently increase once group diversification exceeds a certain level. Unlike U.S. conglomerates' lines of business, and similar to the affiliates of U.S. LBO associations, affiliates of the most diversified business groups outperform unaffiliated firms. Copyright The American Finance Association 2000.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jfinan:v:55:y:2000:i:2:p:867-891
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