Do Business Groups Change With Market Development?

Khanna and Yafeh hypothesize that business groups should be more common in economies with less developed markets and institutions. We test the time‐series version of this hypothesis by looking at changes in Chilean groups over 20 years (1990–2009). In this period, Chile experienced a deep economic t...

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Bibliographic Details
Published in:Journal of economics & management strategy 2016-09, Vol.25 (3), p.750-784
Main Authors: Larrain, Borja, Urzúa I., Francisco
Format: Article
Language:English
Subjects:
Affiliates
Capital markets
Economic development
Hypotheses
Organization theory
Organizational structure
Studies
Time series
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Summary:Khanna and Yafeh hypothesize that business groups should be more common in economies with less developed markets and institutions. We test the time‐series version of this hypothesis by looking at changes in Chilean groups over 20 years (1990–2009). In this period, Chile experienced a deep economic transformation as measured by common proxies of market development (e.g., per capita income doubled). Despite this dramatic transformation, groups remained mostly unchanged in terms of relative size, industrial diversification, vertical integration, control structures, internal capital markets, and reliance on external funds (minority equity plus debt). Only leverage increased. Also, groups' initial conditions were uncorrelated with market development at the time of formation. This evidence casts doubts on the institutional‐voids hypothesis, although more subtle institutional voids, not captured by the type of macro proxies we use, might explain the existence and resilience of business groups.
ISSN:1058-6407
1530-9134
DOI:10.1111/jems.12165