Understanding the behavior of business groups: A dynamic model and empirical analysis
Business groups play significant economic roles in many countries. Motivated by the observation that the literature on business groups is ever-expanding yet providing ambiguous or conflicting results based on empirical investigations, this paper intends to first develop a theoretical model to explain behavior and performance of business groups and then conduct complementary empirical analysis. Drawing on Penrose's (1959) resource-based theory of firm growth, this paper models the firms of which some key resources are lumpy or indivisible and thus they must be purchased or installed only in certain sizes. This premise in the basic model leads to an advantage for business-group firms relative to stand-alone firms without respect to the existence of market failure. The model also predicts that business-group firms will be more profitable in terms of profit-to-sales and will have higher sales and asset, leading to faster growth, other things being equal. Implications of such advantage on firms' performance and behavior are investigated first using numerical experiments based on a dynamic optimization model and then regression analyses based on the Korean firm data. It turns out that a set of testable predictions derived from the basic theoretical model is generally consistent with the conclusions from numerical experiments and empirical tests.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tarun Khanna & Krishna Palepu, 1999. "Emerging Market Business Groups, Foreign Investors, and Corporate Governance," NBER Working Papers 6955, National Bureau of Economic Research, Inc.
- Lee, Keun & Kim, Ji Youn & Lee, Oonkyu, 2010. "Long-term evolution of the firm value and behavior of business groups: Korean chaebols between weak premium, strong discount, and strong premium," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 412-440, September.
- 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.
- Choi, Jeong-Pyo & Cowing, Thomas G., 1999. "Firm behavior and group affiliation: The strategic role of corporate grouping for Korean firms," Journal of Asian Economics, Elsevier, vol. 10(2), pages 195-209.
- Heitor V. Almeida & Daniel Wolfenzon, 2006. "A Theory of Pyramidal Ownership and Family Business Groups," Journal of Finance, American Finance Association, vol. 61(6), pages 2637-2680, December.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998.
"Corporate Ownership Around the World,"
Harvard Institute of Economic Research Working Papers
1840, Harvard - Institute of Economic Research.
- Tarun Khanna & Krishna Palepu, 1999. "Policy Shocks, Market Intermediaries, and Corporate Strategy: The Evolution of Business Groups in Chile and India," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(2), pages 271-310, 06.
- Khanna, Tarun, 2000. "Business groups and social welfare in emerging markets: Existing evidence and unanswered questions," European Economic Review, Elsevier, vol. 44(4-6), pages 748-761, May.
- Kydland, Finn, 1975. "Noncooperative and Dominant Player Solutions in Discrete Dynamic Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 321-35, June.
- 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.
- Joh, Sung Wook, 2003. "Corporate governance and firm profitability: evidence from Korea before the economic crisis," Journal of Financial Economics, Elsevier, vol. 68(2), pages 287-322, May.
- Goto, Akira, 1982. "Business groups in a market economy," European Economic Review, Elsevier, vol. 19(1), pages 53-70.
- 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.
- Leff, Nathaniel H, 1978. "Industrial Organization and Entrepreneurship in the Developing Countries: The Economic Groups," Economic Development and Cultural Change, University of Chicago Press, vol. 26(4), pages 661-75, July.
- Granovetter, Mark, 1995. "Coase Revisited: Business Groups in the Modern Economy," Industrial and Corporate Change, Oxford University Press, vol. 4(1), pages 93-130.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:141-152. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.