Business group prevalence and impact across countries and over time: what can we learn from the literature

Michael Carney, Marc Van Essen, Saul Estrin and Daniel Shapiro

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The business groups (BGs) literature has previously focused on the financial performance of its affiliates, relative to non-affiliated firms in the same country. However, when we consider the main predictions of the two theoretical perspectives on BGs, the institutional voids (IV) and entrenchment/exploitation view (EE), both rely to a significant extent on propositions about BG prevalence. Yet, surprisingly, there are almost no empirical studies that explore levels, impacts and time paths of prevalence. In this study, we therefore focus on BG prevalence both across countries and over time. We build a unique database by extracting estimates of BG prevalence for multiple countries between 1978 and 2012 from the existing literature, and use this to test conflicting predictions derived from the IV and EE perspectives respectively. We find no consistent evidence that BG prevalence diminishes over time with economic development, as institutional voids diminish, which is predicted by the IV perspective. Instead, the long term persistence of BGs in many countries appears to be more consistent with the EE perspective. However, we also find no support for the view that high levels of BG prevalence are negatively associated with country-level indicators and determinants of economic development and competitiveness, as suggested by that perspective. We conclude that there is no robust support for either the IV or the EE view and highlight the need for more contextualised theorizing about the evolution of BGs.

Keywords: business group prevalence; foreign direct investment; institutional voids; entrenchment; economic development; country competitiveness (search for similar items in EconPapers)
JEL-codes: J01 N0 R14 (search for similar items in EconPapers)
Date: 2017-04-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in Multinational Business Review, 18, April, 2017, 25(1), pp. 52-76. ISSN: 1525-383X

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