The Consequences of Business Group Affiliation: A Review of the Literature

R. Locorotondo, Nico Dewaelheyns and C. Van Hulle

Review of Business and Economic Literature, 2012, vol. 57, issue 1, 77-98

Abstract: In contrast to the popular assumption of independence made in the classic corporate finance literature, many companies around the world are linked through common ownership to form business groups. This paper reviews the growing literature on the consequences of business group membership. The presence of internal capital markets within the group may lead to an increased availability of financial resources and more optimal investment allocation due to reduced asymmetric information. Moreover, intragroup guarantees and a group reputation effect may also improve the access to external financing, and group members can engage in risk sharing and risk reducing activities. The existence of business groups may, however, also have negative effects, including expropriation of wealth from minority shareholders, support of inefficient affiliates, political rent-seeking and excessive use of market power. The trade-off between these costs and benefits leads to mixed empirical evidence on the impact of group affiliation on profitability and innovation.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (5)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:sen:rebelj:v:57:i:1:y:2012:p:77-98

Access Statistics for this article

Review of Business and Economic Literature is currently edited by Hans Kluwer

More articles in Review of Business and Economic Literature from Intersentia
Bibliographic data for series maintained by Petra Van den Bempt ( this e-mail address is bad, please contact ).