Business Groups in Emerging Markets – Financial Control and Sequential Investment

Christa Hainz

No 1763, CESifo Working Paper Series from CESifo

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)
Date: 2006
New Economics Papers: this item is included in nep-cfn, nep-com, nep-cse, nep-fin, nep-fmk and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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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:ces:ceswps:_1763

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