Price Synchronicity, Inter-Firm Networks, and Business Groups in the Middle East and North Africa

Business groups are an essential part of the political economy of almost all capitalist countries. Although they have been intensely studied in regions like Latin America and East Asia, the study of business groups in the Middle East and North Africa is relatively less developed. This study presents evidence for the value-relevance, which is measured in terms of over-time correlations of stock returns, of family business groups, government ownership, and other inter-firm relationships among 1185 publicly traded firms in 11 countries in the Middle East and North Africa. Due to the difficulty in obtaining direct observations of business group membership, business groups are inferred with methods from network analysis. More specifically, I use a community-detection algorithm to look for clusters of different types of relationships. Next, I apply a Bayesian multilevel model to estimate the associations between group comembership (as well as other relationships), and pairwise stock returns correlations. Seven exchanges in the sample show evidence in favor of the value-relevance of inferred family business groups while six show additional correlations due to government ownership beyond that associated with co-ownership more generally.