Business Groups in Emerging Markets - Substitutes for Missing Institutions

Christa Hainz

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: Abstract: Business groups in emerging markets perform better than unaffiliated firms. We study how business groups can substitute some functions of missing institutions, for example, enforcing contracts. In a two period model, there is no contract enforcement in the first period. The firms within the business group are connected to each other by a vertical production structure, resulting in externalities due to double marginalization, and an internal capital market. Our model derives the sequencing of investments and the credit contract offered by the headquarters that solve the ex post moral hazard problem. Thus, the business group's organizational mode and the financial structure facilitate relational contracting.

Keywords: Business groups; internal capital market; institutions (search for similar items in EconPapers)
JEL-codes: G21 K49 L22 (search for similar items in EconPapers)
Date: 2004-07
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://epub.ub.uni-muenchen.de/387/1/Hainz-buisnessgroup.pdf (application/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:lmu:muenec:387

Access Statistics for this paper

More papers in Discussion Papers in Economics from University of Munich, Department of Economics Ludwigstr. 28, 80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg ().