The existence of the business groups has been associated with market failure in emerging economies, and thus their performance has been argued and found to have declined with development of market institutions surrounding them. This paper takes up this issue of long-term performance of the business groups but argues that it has also to do with the internal problems, such as changes in the ownership and governance structure. It finds, with the Korea data and new method and theoretical grounds, that the relative performance of the business groups, the Chaebols, had consistently declined over the 1980s and 1990s although they were more efficient than the non-Chaebol firms during the early 1980s. The results are robust to different estimation methods, and also to controls for the possible survivorship bias, industry composition, and scale effects. The paper explains the performance change by examining the decrease of the shares held by the controlling families and the associated aggrava...

We investigate the link between institutional development and value of business groups in an emerging market context, while controlling for the potential effect of cultural norms. China provides a good research lab since it has been undergoing profound institutional changes during the past thirty years and it currently combines great heterogeneity in institutional development across the Chinese provinces with homogeneity in cultural norms, law, and regulation. Using handcollected data from publicly listed Chinese firms, we find that the largest shareholder’s ownership concentration creates value regardless the ownership nature (business group or SOE) and the institutional development level. Meanwhile, when institutional efficiency is low, the ownership of and the management by business group controlling shareholder increase value in comparison with other types of ownership and management, while the control in excess of ownership executed by business group controlling shareholder red...

Abstract An increasing number of Chinese companies are now taking the form of the business group. The big business groups in China tend to have more state shares, be more heavily indebted, less profitable, and accumulating capital more slowly than non-group firms. The emergence of the business groups was an outcome of entry into new profitable business fields by the existing companies given that exit from the old business fields was not easy due to institutional constraints.

Manuscript Type: EmpiricalResearch Question/Issue: This study seeks to understand how business group affiliation, within firm governance and external governance environment affect firm performance in emerging economies. We examine two aspects of within firm governance – ownership concentration and board independence.Research Findings/Insights: Using archival data on the top 500 Indian and Chinese firms from multiple data sources for 2007, we found that group affiliated firms performed worse than unaffiliated firms, and the negative relationship was stronger in the case of Indian firms than for Chinese firms. We also found that ownership concentration had a positive effect on firm performance, while board independence had a negative effect on firm performance. Further, we found that group affiliation – firm performance relationship in a given country context was moderated by ownership concentration.Theoretical/Academic Implications: This study utilizes an integration of agency theory with an institutional perspective, providing a more comprehensive framework to analyze the CG problems, particularly in the emerging economy firms. Empirically, our findings support, as well as contradict, some of the conventional wisdom, and suggest useful avenues for future research.Practitioner/Policy Implications: This study shows that reforms in general and CG reforms in particular are effective in emerging economies, which is an encouraging sign for policy makers. However, our research also suggests that it may be time for India and China to stop the encouragement for the empire building through group formation in the corporate world. For practioners, our findings suggest that firms need to balance the need for oversight with the need for advice, while selecting independent directors.