The Future of Business Groups in Emerging Markets: Long Run Evidence from Chile

We demonstrate variation in the extent to which firms benefit from their affiliation with Chilean business groups in the 1988-1996 period. The net benefits of unrelated diversification are positive if group diversification exceeds a threshold level, though this threshold increases with time. We find evidence of non-diversification related group benefits, which atrophy over time. We conjecture that the evolution of institutional context alters the value creating potential of business groups, though it does so slowly.

[1]  Vasudevan Ramanujam,et al.  Research on corporate diversification: A synthesis , 1989 .

[2]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[3]  M. Y. Yoshino,et al.  First Pacific Company Limited: From Letters of Credit to Personal Communications Networks , 1995 .

[4]  R. Camp.  Entrepreneurs and Politics in Twentieth-Century Mexico , 1989 .

[5]  John A. Davis,et al.  Generation to Generation: Life Cycles of the Family Business , 1997 .

[6]  David J. Teece,et al.  Towards an economic theory of the multiproduct firm , 1982 .

[7]  R. Robison,et al.  Indonesia: The Rise of Capital , 1987 .

[8]  D. North.  Institutions, Institutional Change and Economic Performance: Economic performance , 1990 .

[9]  E. Phelps,et al.  Needed mechanisms of corporate governance and finance in Eastern-Europe' , 1993 .

[10]  Michael A. Hitt,et al.  Antecedents and Performance Outcomes of Diversification: A Review and Critique of Theoretical Perspectives , 1990 .

[11]  David E. Weinstein,et al.  On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan , 1998 .

[12]  C. Hill.  National Institutional Structures, Transaction Cost Economizing and Competitive Advantage: The Case of Japan , 1995 .

[13]  S. S. Gill.  The Pathology of Corruption , 1998 .

[14]  Tarun Khanna,et al.  Emerging Market Business Groups, Foreign Investors, and Corporate Governance , 1999 .

[15]  Roderick Martin.  Asian business networks , 1997 .

[16]  Douglas W. Diamond.  Financial Intermediation and Delegated Monitoring , 1984 .

[17]  Andrei Shleifer,et al.  Corporate Ownership Around the World , 1998 .

[18]  A. Schwarz.  A Nation In Waiting: Indonesia In The 1990s , 1994 .

[19]  E. Perotti,et al.  The governance structure of the Japanese financial keiretsu , 1994 .

[20]  D. Scharfstein,et al.  Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups , 1991 .

[21]  E. Lindenberg,et al.  Tobin's q Ratio and Industrial Organization , 1981 .

[22]  M. Aoki.  Toward an Economic Model of the Japanese Firm , 2013 .

[23]  G. Benston.  The Validity of Studies with Line of Business Data: Reply [The Validity of Profits-Structure Studies with Particular Reference to the FTC's Line of Business Data] , 1985 .

[24]  C. Prahalad,et al.  The Core Competence of the Corporation , 1990 .

[25]  Brent R. Moulton.  An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit , 1990 .

[26]  Cynthia A. Montgomery,et al.  Tobin's q and the Importance of Focus in Firm Performance , 1988 .

[27]  Alfred D. Chandler.  The M-form: Industrial groups, American style , 1982 .

[28]  K. Palepu.  Diversification strategy, profit performance and the entropy measure , 1985 .

[29]  Harry W. Strachan,et al.  Family and other business groups in economic development: The case of Nicaragua , 1976 .

[30]  G. Jarrell,et al.  Corporate focus and stock returns , 1995 .

[31]  A. Greif.  Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies , 1994, Journal of Political Economy.

[32]  Douglas D. Moesel,et al.  CONSTRUCT VALIDITY OF AN OBJECTIVE (ENTROPY) CATEGORICAL MEASURE OF DIVERSIFICATION STRATEGY , 1993 .

[33]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[34]  Tarun Khanna,et al.  Empresas CAP, 1994 , 1998 .

[35]  R. Caves.  International differences in industrial organization , 1989 .

[36]  Krishna G. Palepu,et al.  Policy Shocks, Market Intermediaries, and Corporate Strategy: 'The Evolution of Business Groups in Chile and India' , 1998 .

[37]  E. Ofek,et al.  Diversification's effect on firm value , 1995 .

[38]  Lynn Pan,et al.  Sons of the yellow emperor : the story of the overseas Chinese , 1991 .

[39]  D. Teece.  ECONOMIES OF SCOPE AND THE SCOPE OF THE ENTERPRISE , 1980 .

[40]  A. Shleifer,et al.  Legal Determinants of External Finance , 1997 .

[41]  F. Lichtenberg,et al.  Industrial De-Diversification and its Consequences for Productivity , 1990 .

[42]  T. Khanna,et al.  Why Focused Strategies May Be Wrong for Emerging Markets , 1997 .

[43]  V. Nee.  Organizational Dynamics of Market Transition: Hybrid Forms, Property Rights, and Mixed Economy in China , 1992 .

[44]  T. Khanna,et al.  Corporate Scope and Institutional Context: An Empirical Analysis of Diversified Indian Business Groups , 1996 .

[45]  C. Geertz.  The interpretation of cultures: Selected essays , 1975 .

[46]  George A. Akerlof,et al.  The Market for `Lemons , 1970 .

[47]  T. Khanna,et al.  Competitive Policy Shocks and Strategic Management , 1998 .

[48]  Akira Goto,et al.  Business groups in a market economy , 1982 .

[49]  Rudiger Dornbusch,et al.  The Chilean economy : policy lessons and challenges , 1994 .

[50]  C. Prahalad,et al.  The core competence of the corporation’, Harvard Business Review, Vol. pp. . , 1990 .

[51]  N. Lustig,et al.  Labor markets in Latin America : combining social protection with market flexibility , 1997 .

[52]  David Encaoua,et al.  Organizational Efficiency and Monopoly Power - the Case of French Industrial Groups , 1982 .

[53]  Sea Jin Chang,et al.  Strategy, Structure and Performance of Korean Business Groups: A Transactions Cost Approach , 1988 .

[54]  Cynthia A. Montgomery,et al.  Diversification, Ricardian rents, and Tobin's q , 1988 .

[55]  Lisa A. Keister,et al.  Engineering Growth: Business Group Structure and Firm Performance in China's Transition Economy1 , 1998, American Journal of Sociology.

[56]  Florencio López‐de‐Silanes,et al.  Law and Finance , 1996, Journal of Political Economy.

[57]  Yingyi Qian,et al.  Reforming corporate governance and finance in China , 1994 .

[58]  René M. Stulz,et al.  Tobin's q, Corporate Diversification, and Firm Performance , 1993, Journal of Political Economy.

[59]  W. Easterly,et al.  Africa's Growth Tragedy: Policies and Ethnic Divisions , 1997 .

[60]  A. Krueger.  The Political Economy of the Rent-Seeking Society , 1974 .

[61]  John Child,et al.  The Iron Law of Fiefs: Bureaucratic Failure and the Problem of Governance in the Chinese Economic Reforms , 1988 .

[62]  O. Williamson.  Comparative Economic Organization: The Analysis of Discrete Structural Alternatives , 1994 .

[63]  William G. Ouchi,et al.  Markets, Bureaucracies, and Clans. , 1980 .

[64]  Jagdish N. Bhagwati,et al.  Directly Unproductive, Profit-Seeking (DUP) Activities , 1982, Journal of Political Economy.

[65]  D. Pollard.  Advances in International Comparative Management , 2000 .

[66]  Brent R. Moulton.  Random group effects and the precision of regression estimates , 1986 .

[67]  M. Spence.  Job Market Signaling , 1973 .

[68]  L. White,et al.  Industrial Concentration and Economic Power in Pakistan. , 1975 .

[69]  Maurice Zeitlin,et al.  Corporate Ownership and Control: The Large Corporation and the Capitalist Class , 1974, American Journal of Sociology.

[70]  A. Amsden,et al.  Project Execution Capability, Organizational Know-how and Conglomerate Corporate Growth in Late Industrialization , 1994 .

[71]  Kunio Odaka,et al.  Industrial Organization in Japan , 1961 .

[72]  Paolo Leon.  The Economic Institutions of Capitalism , 1986, The Antitrust Bulletin.

[73]  M. Aoki.  THE CONTINGENT GOVERNANCE OF TEAMS: ANALYSIS OF INSTITUTIONAL COMPLEMENTARITY , 1994 .

[74]  N. Leff,et al.  Industrial Organization and Entrepreneurship in the Developing Countries: The Economic Groups , 1978, Economic Development and Cultural Change.

[75]  Daniel F. Spulber.  Market Microstructure and Intermediation , 1996 .

[76]  Sudipt Dutta.  Family business in India , 1997 .

[77]  M. Gerlach,et al.  The Japanese Corporate Network: A Blockmodel Analysis , 1992 .

[78]  Christina L. Ahmadjian,et al.  Keiretsu Networks and Corporate Performance in Japan , 1996 .

[79]  C. Geertz,et al.  Peddlers and Princes: Social Change and Economic Modernization in Two Indonesian Towns. , 1965 .

[80]  L. Lomnitz,et al.  A Mexican Elite Family, 1820-1980: Kinship, Class, and Culture , 1987 .

[81]  Masahiko Aoki Hyung-Ki Kim.  Corporate governance in transitional economies : insider control and the role of banks , 1995 .

[82]  Richard E. Caves,et al.  Industrial organization in Japan , 1978 .

[83]  Narasimhan Srinivasan,et al.  Construct validity of some unweighted product‐count diversification measures , 1993 .

[84]  A. Amsden.  Asia's Next Giant: South Korea and Late Industrialization , 1991 .

[85]  M. Guillén.  BUSINESS GROUPS IN ECONOMIC DEVELOPMENT. , 1997 .

[86]  J. Sachs,et al.  Economic Reform and the Process of Global Integration , 1995 .