Business Groups in Emerging Markets: Paragons or Parasites?

By Tarun Khanna, Yishay Yafeh. 2007

1,495 citations recorded by the source corpus.

Diversified business groups, consisting of legally independent firms operating across diverse industries, are ubiquitous in emerging markets. Groups around the world share certain attributes but also vary substantially in structure, ownership, and other dimensions. This paper proposes a business group taxonomy, which is used to formulate hypotheses and present evidence about the reasons for the formation, prevalence, and evolution of groups in different environments. In interpreting the evidence, the authors pay particular attention to two aspects neglected in much of the literature: the circumstances under which groups emerge and the historical evidence on some of the questions addressed by recent studies. They argue that business groups are responses to different economic conditions and that, from a welfare standpoint, they can sometimes be "paragons" and, at other times, "parasites." The authors conclude with an agenda for future research.

Subfields: Accounting, Organizational Behavior and Human Resource Management

View Paper: https://www.semanticscholar.org/paper/a4b42139084d14a7cf8a0937b67965050e2fd74b

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Citations in the corpus

Business groups in developing capital markets: Towards a complementarity perspective (2015, background): “Diversified business groups (henceforth BGs) play an important role in the socioeconomic landscape of many emerging economies (see Khanna and Yafeh, 2007; Yiu et al., 2007, for a review).”
Institutional Voids or Organizational Resilience? Business Groups, Innovation, and Market Development in Latin America (2015, background): “Thus, groups originate and prosper when national institutions are weak and, correspondingly, group performance is relatively good in countries characterized by weaker institutions than in economies with wellfunctioning institutional set ups (Fisman & Khanna, 2004; Khanna & Yafeh, 2007).”
Large Foreign Ownership and Firm-Level Stock Return Volatility in Emerging Markets (2011, neutral): “The second instrument is based on the well-documented pattern that many emerging market firms are often part of a business group and controlled through a pyramid structure (see Khanna and Yafeh (2007)).”
Overcoming the liability of foreignness without strong firm capabilities — the value of market-based resources (2010, background): “However, the capacity of emerging multinationals to use networks to overcome a haze of bureaucratic requirements (Khanna and Yafeh, 2007; LorenzenandTaeube, 2008); to enter into contractswithout thepresumption that they can be enforced (Choi et al., 1999; Hoskisson et al., 2000); and generally to…”
Leviathan as a Minority Shareholder: Firm-Level Implications of State Equity Purchases (2013, background): “Through their internal, corporate markets, groups can provide affiliates with capital, labor, or other inputs that are scarce in external markets (Khanna & Yafeh, 2007; Leff, 1978; Wan & Hoskisson, 2003).”
The internationalization of emerging market business groups: an integrated literature review (2010, background): “Discussion and suggestions for future research Business groups have inspired a large body of literature during the past two decades or so (Khanna and Yafeh, 2007).”
Institutions and Organizational Structure: The Case of State-Owned Corporate Pyramids (2013, background): “Introduction Pyramid-like organizational structures are commonplace (La Porta, Lopez-de-Silanes, and Shleifer, 1999; Claessens, Djankov, and Lang, 2000; Khanna and Yafeh, 2007).”
Returnees Versus Locals: Who Perform Better in China's Technology Entrepreneurship? (2012, result): “Third, previous studies have highlighted the important role of business groups in emerging markets (Hoskisson et al., 2000; Keister, 1998; Khanna and Yafeh, 2007).”
Corporate finance and governance in emerging markets: A selective review and an agenda for future research (2011, background): “…controlling essential financial resources and political capitals can leverage up these advantages by diversifying into various sectors, and form business groups within which scarce financial and other resources can be exchanged among affiliated firms (Morck et al., 2004; Khanna and Yafeh, 2007).”
Filling institutional voids in emerging economies: The impact of capital market development and business groups on M&A deal abandonment (2016, background): “Most local research on business groups mentioned their significant market dominance and connection to the government, which enables special benefits such as preferential tariffs or easy financing (Carrera, Mesquita, Perkins, & Vassolo, 2003; Keister, 1998; Khanna & Yafeh, 2007; Song, 2002).”
Impact of informal institutions on the prevalence, strategy, and performance of family firms: A meta-analysis (2020, background): “…and regulatory institutions (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998; Peng & Jiang, 2010) and institutional imperfections or ‘‘voids’’ (Khanna & Yafeh, 2007; Luo & Chung, 2013) are important contingencies affecting FCFs’ ownership and control, unique strategic patterns, and…”
Beyond institutional voids: Business groups, incomplete markets, and organizational form (2015, background): “…which businesses are organized as multiple legal entities with their own management and governance structure, and yet maintained under a coherent administrative context through a host of formal and informal ties (Khanna and Yafeh, 2007; Yiu et al., 2007), exemplifies such an organizational design.”