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Business Groups in Emerging Markets - Financial Control and Sequential Investment

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  • Hainz, Christa

Abstract

Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate.

Suggested Citation

  • Hainz, Christa, 2006. "Business Groups in Emerging Markets - Financial Control and Sequential Investment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 124, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:124
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    Cited by:

    1. Domenico Scalera & Alberto Zazzaro, 2009. "Do Inter-Firm Networks Make Access to Finance Easier? Issues and Empirical Evidence," Mo.Fi.R. Working Papers 25, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. Monika Fiedorczuk, 2011. "Znaczenie grup kapitałowych w Rosji," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 11-12, pages 61-81.
    3. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
    4. Albert Jolink & Eva Niesten, 2012. "Hybrid Governance," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 12, Edward Elgar Publishing.
    5. William Pyle, 2006. "Collective action and post-communist enterprise: The economic logic of Russia's business associations," Europe-Asia Studies, Taylor & Francis Journals, vol. 58(4), pages 491-521.
    6. Горцева Н. В., 2014. "Особенности Анализа И Планирования Финансового Состояния Предприятий, Входящих В Группы Компаний," Проблемы современной экономики, CyberLeninka;Общество с ограниченной ответственностью «Научно-производственная компания «РОСТ», issue 3 (51), pages 197-199.

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    More about this item

    Keywords

    Business groups; self-enforcing contract; institutions; internal capital market;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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