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Internal Capital Markets And Multimarket Contact As Explanations For Conglomerates In Emerging Markets

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  • JORGE TARZIJÁN M

    ()

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

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    Abstract

    This paper reviews some of the main reasons found in the literature to explain the diversification decisions of firms and analyzes their relevance for firms located in emerging markets. This analysis is interesting because casual observation shows that large and diversified conglomerates still exist in developed economies and probably are the dominant type of enterprise in emerging markets. We conclude that two important reasons that may explain the existence of large diversified conglomerates in emerging markets are the creation and development of «internal capital markets» and the «market power» obtained through «multimarket contact». Because of their potential importance, these reasons are examined in depth in the paper.

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    Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

    Volume (Year): 2 (1999)
    Issue (Month): 1 ()
    Pages: 3-22

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    Handle: RePEc:pch:abante:v:2:y:1999:i:1:p:3-22
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    Keywords: Emerging Markets; Conglomerates; Internal Capital Markets; Corporate Structure; Multimarket Contact;

    Find related papers by JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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    1. Nicolás Majluf & Nureya Abarca & Darío Rodríguez & Luis Arturo Fuentes, 1998. "Governance And Ownership Structure In Chilean Economic Groups," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 1(1), pages 111-139.
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    6. Larry H.P. Lang & Rene M. Stulz, 1993. "Tobin's Q, Corporate Diversification and Firm Performance," NBER Working Papers 4376, National Bureau of Economic Research, Inc.
    7. Donaldson, Gordon, 1990. "Voluntary restructuring : The case of General Mills," Journal of Financial Economics, Elsevier, vol. 27(1), pages 117-141, September.
    8. Robert H. Gertner & David S. Scharfstein & Jeremy C. Stein, 1994. "Internal versus External Capital Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1211-1230.
    9. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    10. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    11. Robert H. Gertner & David S. Scharfstein & Jeremy C. Stein, 1994. "Internal versus External Capital Markets," NBER Working Papers 4776, National Bureau of Economic Research, Inc.
    12. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    13. Servaes, Henri, 1996. " The Value of Diversification during the Conglomerate Merger Wave," Journal of Finance, American Finance Association, vol. 51(4), pages 1201-25, September.
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    15. Jeremy C. Stein, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 655-669.
    16. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
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    Cited by:

    1. 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.

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