Business Groups in Emerging Markets - Financial Control and Sequential Investment

Christa Hainz

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate.

Keywords: Business groups; self-enforcing contract; institutions; internal capital market (search for similar items in EconPapers)
JEL-codes: G31 G32 G34 K49 L22 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-com, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://epub.ub.uni-muenchen.de/13427/1/124.pdf (application/pdf)

Related works:
Journal Article: Business Groups in Emerging Markets: Financial Control and Sequential Investments (2007)
Working Paper: Business Groups in Emerging Markets – Financial Control and Sequential Investment (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:124

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