Business Groups and Internal Capital Markets

Halit Gonenc, Ozgur B. Kan and Ece Karadagli

Emerging Markets Finance and Trade, 2007, vol. 43, issue 2, 63-81

Abstract: We compare the performance of firms affiliated with diversified business groups with the performance of unaffiliated firms in Turkey, an emerging market. We address the question of whether group-affiliated firms create internal capital markets or control large cash flows. Our findings indicate that group affiliation improves a firm's accounting performance, but not stock market performance. Deviation of cash-flow rights from voting rights has a negative but insignificant effect on accounting performance, but a significant effect on market performance. We also find that a firm's accounting, but not stock market, performance increases with the level of group diversification. Our results show that internal capital markets play an important role for the existence of business groups in an emerging market context.

Keywords: business groups; emerging market; internal capital markets (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (11)

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