Speaker: Professor Sumon Bhaumik, Chair in Finance, Sheffield University Management School
Chair: Professor Victor Murinde, AXA Chair in Global Finance, SOAS University of London

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. Perusal of the literature suggests that while their organisational structures facilitate better management of risk and may be associated with better short-term performance relative to stand alone firms, business group membership comes with certain disadvantages. For example, once in distress, business group affiliated firms may take longer to recover. Similarly, business group membership may be associated with inefficient use of internal resources. In this paper, we extend the literature on business groups by focusing on technological progress, which lies at the heart of firm competitiveness in the long run. We examine, using Indian data, whether business group affiliation provides an advantage over unaffiliated (or private independent) firms with respect to technological progress. 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 is soon lost. We discuss the implications of our results for the efficacy of the business group organisational structure as market voids and institutional weaknesses in emerging market economies are reduced by policy changes and economic reforms.

Co-authors: Yong Zhou and Jiao Ji

The seminars are sponsored by grants from DFID and ESRC [ESRC Ref: ES/N013344/2], ESRC and NSFC [ESRC Ref: ES/P005241/1] and AXA Research Fund