IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2014-1066.html
   My bibliography  Save this paper

Do business groups help or hinder technological progress in emerging markets? Evidence from India

Author

Listed:
  • Sumon K. Bhaumik
  • Ying Zhou

Abstract

Business groups, which are ubiquitous in emerging market economies, balance the advantages of characteristics such as internal capital markets with the disadvantages such as inefficient internal distribution of resources and suppression of technological and other forms of innovativeness. In this paper, we examine, in the Indian context, whether business group affiliation provides an advantage over unaffiliated (or private independent) firms with respect to technological progress, which lies at the heart of wider economic growth and prosperity. Our results suggest that while business group affiliation did provide an advantage over private independent firms at the start of the sample period (2000), this advantage was more than offset by the turn of the century. We discuss the implications of our results for economic growth rates in emerging market economies.

Suggested Citation

  • Sumon K. Bhaumik & Ying Zhou, 2014. "Do business groups help or hinder technological progress in emerging markets? Evidence from India," William Davidson Institute Working Papers Series wp1066, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2014-1066
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/133086/1/wp1066.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Saul Estrin & Svetlana Poukliakova & Daniel Shapiro, 2009. "The Performance Effects of Business Groups in Russia," Journal of Management Studies, Wiley Blackwell, vol. 46(3), pages 393-420, May.
    2. Marie-Ange VEGANZONES-VAROUDAKIS & Arup MITRA & Chandan SHARMA, 2011. "Total Factor Productivity and Technical Efficiency of Indian Manufacturing: The Role of Infrastructure and Information & Communication Technology," Working Papers 201115, CERDI.
    3. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2010. "Globalization and Innovation in Emerging Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 194-226, April.
    4. Sharon Belenzon & Tomer Berkovitz, 2010. "Innovation in Business Groups," Management Science, INFORMS, vol. 56(3), pages 519-535, March.
    5. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    6. Maitreesh Ghatak & Raja Kali, 2001. "Financially Interlinked Business Groups," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 591-619, December.
    7. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
    8. Sangho Kim & Muthusamy Saravanakumar, 2012. "Economic Reform and Total Factor Productivity Growth in Indian Manufacturing Industries," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 152-166, February.
    9. Mitra, Arup & Varoudakis, Aristomene & Veganzones-Varoudakis, Marie-Ange, 2002. "Productivity and Technical Efficiency in Indian States' Manufacturing: The Role of Infrastructure," Economic Development and Cultural Change, University of Chicago Press, vol. 50(2), pages 395-426, January.
    10. Ishtiaq P. Mahmood & Will Mitchell, 2004. "Two Faces: Effects of Business Groups on Innovation in Emerging Economies," Management Science, INFORMS, vol. 50(10), pages 1348-1365, October.
    11. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    12. Daron Acemoglu & Philippe Aghion & Claire Lelarge & John Van Reenen & Fabrizio Zilibotti, 2007. "Technology, Information, and the Decentralization of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1759-1799.
    13. David ZWEIG, 2006. "Competing for talent: China's strategies to reverse the brain drain," International Labour Review, International Labour Organization, vol. 145(1-2), pages 65-90, March.
    14. Sourafel Girma & Holger Görg, 2016. "Multinationals’ Productivity Advantage: Scale Or Technology?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 1, pages 3-15, World Scientific Publishing Co. Pte. Ltd..
    15. Hicheon Kim & Johngseok Bae & Garry Bruton, 2012. "Business groups and institutional upheaval in emerging economies: Corporate venturing in Korea," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 729-752, September.
    16. Riyanto, Yohanes E. & Toolsema, Linda A., 2008. "Tunneling and propping: A justification for pyramidal ownership," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2178-2187, October.
    17. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    18. Bhaumik, Sumon Kumar & Das, Pranab Kumar & Kumbhakar, Subal C., 2012. "A stochastic frontier approach to modelling financial constraints in firms: An application to India," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1311-1319.
    19. Daphne Yiu & Garry D. Bruton & Yuan Lu, 2005. "Understanding Business Group Performance in an Emerging Economy: Acquiring Resources and Capabilities in Order to Prosper," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 183-206, January.
    20. Granovetter, Mark, 1995. "Coase Revisited: Business Groups in the Modern Economy," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 4(1), pages 93-130.
    21. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
    22. Kali, Raja, 1999. "Endogenous Business Networks," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 615-636, October.
    23. Sabuj Kumar Mandal, 2009. "Technological Progress, Scale Effect and Total Factor Productivity Growth in Indian Cement Industry: Panel Estimation of Stochastic Production Frontier," Working Papers 216, Institute for Social and Economic Change, Bangalore.
    24. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    25. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
    26. Sumon Kumar Bhaumik & Shubhashis Gangopadhyay & Shagun Krishnan, 2009. "Reforms and Entry: Some Evidence from the Indian Manufacturing Sector," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 658-672, November.
    27. Kock, Carl J & Guillen, Mauro F, 2001. "Strategy and Structure in Developing Countries: Business Groups as an Evolutionary Response to Opportunities for Unrelated Diversification," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 10(1), pages 77-113, March.
    28. Kannan Ramaswamy & Mingfang Li & Barbara Petitt, 2012. "Why do business groups continue to matter? A study of market failure and performance among Indian manufacturers," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 643-658, September.
    29. Bhaumik, Sumon Kumar & Dimova, Ralitza, 2004. "How important is ownership in a market with level playing field?: The Indian banking sector revisited," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 165-180, March.
    30. Nicholas Bloom & Raffaella Sadun, 2012. "The Organization of Firms Across Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(4), pages 1663-1705.
    31. Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July.
    32. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    33. International Finance Corporation & World Bank, 2012. "Doing Business 2012 : Doing Business in a More Transparent World," World Bank Publications - Books, The World Bank Group, number 5907.
    34. 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.
    35. Mahmood, Ishtiaq P. & Lee, Chang-Yang, 2004. "Business groups: entry barrier-innovation debate revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 513-531, August.
    36. Choi, Suk Bong & Lee, Soo Hee & Williams, Christopher, 2011. "Ownership and firm innovation in a transition economy: Evidence from China," Research Policy, Elsevier, vol. 40(3), pages 441-452, April.
    37. Randall Morck & Bernard Yeung, 2003. "Agency Problems in Large Family Business Groups," Entrepreneurship Theory and Practice, , vol. 27(4), pages 367-382, October.
    38. Bong-Kyo Seo & Keun Lee & Xiaozu Wang, 2010. "Causes for changing performance of the business groups in a transition economy: market-level versus firm-level factors in China -super-‡," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(6), pages 2041-2072, December.
    39. Jeremy T. Fox & Valérie Smeets, 2011. "Does Input Quality Drive Measured Differences In Firm Productivity?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 961-989, November.
    40. Raja Kali, 2003. "Business groups, the financial market and modernization," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(4), pages 671-696, December.
    41. Bhaumik, Sumon Kumar & Kumbhakar, Subal C., 2010. "Is the post-reform growth of the Indian manufacturing sector efficiency driven? Empirical evidence from plant-level data," Journal of Asian Economics, Elsevier, vol. 21(2), pages 219-232, April.
    42. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    43. Sea-Jin Chang & Chi-Nien Chung & Ishtiaq P. Mahmood, 2006. "When and How Does Business Group Affiliation Promote Firm Innovation? A Tale of Two Emerging Economies," Organization Science, INFORMS, vol. 17(5), pages 637-656, October.
    44. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    45. Greene, William, 2005. "Reconsidering heterogeneity in panel data estimators of the stochastic frontier model," Journal of Econometrics, Elsevier, vol. 126(2), pages 269-303, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sumon Kumar Bhaumik & Saul Estrin & Tomasz Mickiewicz, 2017. "Ownership identity, strategy and performance: Business group affiliates versus independent firms in India," Asia Pacific Journal of Management, Springer, vol. 34(2), pages 281-311, June.
    2. Athreye, Suma & Saeed, Abubakr & Baloch, Muhammad Saad, 2021. "Financial crisis of 2008 and outward foreign investments from China and India," Journal of World Business, Elsevier, vol. 56(3).
    3. Yunwei Li & Wenjing Long & Xiao Ning & Yumeng Zhu & Yifan Guo & Zhou Huang & Yu Hao, 2022. "How can China's sustainable development be damaged in consequence of financial misallocation? Analysis from the perspective of regional innovation capability," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 3649-3668, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sumon Kumar Bhaumik & Saul Estrin & Tomasz Mickiewicz, 2017. "Ownership identity, strategy and performance: Business group affiliates versus independent firms in India," Asia Pacific Journal of Management, Springer, vol. 34(2), pages 281-311, June.
    2. Anish Purkayastha & Vishal K. Gupta, 2023. "Business group affiliation and entrepreneurial orientation: Contingent effect of level of internationalization and firm’s performance," Asia Pacific Journal of Management, Springer, vol. 40(2), pages 847-876, June.
    3. Carney, Michael & Estrin, Saul & Van Essen, Marc & Shapiro, Daniel, 2017. "Business groups reconsidered: beyond paragons and parasites," LSE Research Online Documents on Economics 87340, London School of Economics and Political Science, LSE Library.
    4. Holmes, R. Michael & Hoskisson, Robert E. & Kim, Hicheon & Wan, William P. & Holcomb, Tim R., 2018. "International strategy and business groups: A review and future research agenda," Journal of World Business, Elsevier, vol. 53(2), pages 134-150.
    5. Chang-Yang Lee & Ji-Hwan Lee & Ajai S. Gaur, 2017. "Are large business groups conducive to industry innovation? The moderating role of technological appropriability," Asia Pacific Journal of Management, Springer, vol. 34(2), pages 313-337, June.
    6. Rawat, Pankaj S. & Sharma, Seema, 2021. "TFP growth, technical efficiency and catch-up dynamics: Evidence from Indian manufacturing," Economic Modelling, Elsevier, vol. 103(C).
    7. Xufei Ma & Jane Wenzhen Lu, 2017. "Business group affiliation as institutional linkages in China’s emerging economy: A focus on organizational traits and institutional conditions," Asia Pacific Journal of Management, Springer, vol. 34(3), pages 675-697, September.
    8. Surenderrao Komera & P. J. Jijo Lukose & Subash Sasidharan, 2018. "Does business group affiliation encourage R&D activities? Evidence from India," Asia Pacific Journal of Management, Springer, vol. 35(4), pages 887-917, December.
    9. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
    10. William Horrace & Seth Richards-Shubik & Ian Wright, 2015. "Expected efficiency ranks from parametric stochastic frontier models," Empirical Economics, Springer, vol. 48(2), pages 829-848, March.
    11. Gralka, Sabine, 2018. "Stochastic frontier analysis in higher education: A systematic review," CEPIE Working Papers 05/18, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    12. Belotti, Federico & Ilardi, Giuseppe, 2018. "Consistent inference in fixed-effects stochastic frontier models," Journal of Econometrics, Elsevier, vol. 202(2), pages 161-177.
    13. Quang Nguyen & Sean Pascoe & Louisa Coglan & Son Nghiem, 2021. "The sensitivity of efficiency scores to input and other choices in stochastic frontier analysis: an empirical investigation," Journal of Productivity Analysis, Springer, vol. 55(1), pages 31-40, February.
    14. Federico Belotti & Giuseppe Ilardi & Andrea Piano Mortari, 2019. "Estimation of Stochastic Frontier Panel Data Models with Spatial Inefficiency," CEIS Research Paper 459, Tor Vergata University, CEIS, revised 30 May 2019.
    15. Paul, Satya & Shankar, Sriram, 2018. "Modelling Efficiency Effects in a True Fixed Effects Stochastic Frontier," MPRA Paper 87437, University Library of Munich, Germany.
    16. Satya Paul & Sriram Shankar, 2020. "Estimating efficiency effects in a panel data stochastic frontier model," Journal of Productivity Analysis, Springer, vol. 53(2), pages 163-180, April.
    17. Abiodun Adegboye & Olawale Daniel Akinyele, 2022. "Assessing the determinants of government spending efficiency in Africa," Future Business Journal, Springer, vol. 8(1), pages 1-17, December.
    18. Fabio Pieri & Enrico Zaninotto, 2013. "Vertical integration and efficiency: an application to the Italian machine tool industry," Small Business Economics, Springer, vol. 40(2), pages 397-416, February.
    19. K. S. Manikandan & J. Ramachandran, 2015. "Beyond institutional voids: Business groups, incomplete markets, and organizational form," Strategic Management Journal, Wiley Blackwell, vol. 36(4), pages 598-617, April.
    20. Luis Alfonso Dau & Randall Morck & Bernard Yin Yeung, 2021. "Business groups and the study of international business: A Coasean synthesis and extension," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 161-211, March.

    More about this item

    Keywords

    Business groups; Technological progress; India;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2014-1066. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.