Business Groups in Emerging Markets-Financial Control & Sequential Investment

Christa Hainz

No wp830, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

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)
Pages: pages
Date: 2006-06-01
New Economics Papers: this item is included in nep-com and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp830.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp830.pdf [302 Found]--> https://wdi.umich.edu/files/Publications/WorkingPapers/wp830.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2006-830

Access Statistics for this paper

More papers in William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109. Contact information at EDIRC.
Bibliographic data for series maintained by WDI ().