Featured Research

from universities, journals, and other organizations

Business groups, capital market participation have complementary effects for Indian companies

Date:
July 16, 2014
Source:
Rice University
Summary:
Being a part of a business group and participating in capital markets can have a significant positive impact on an Indian company's performance in the stock market, according to a new study on Indian entrepreneurship by emerging-economy experts.

Being a part of a business group and participating in capital markets can have a significant positive impact on an Indian company's performance in the stock market, according to a new study on Indian entrepreneurship by emerging-economy experts at Rice University, the Indian School of Business in Hyderabad, India, and the graduate business school INSEAD Singapore.

Related Articles


The findings contradict prior research that suggests business groups in developing economies act mainly as substitutes to poorly developed economic institutions in these countries. Business (or corporate) groups are entities that control and coordinate two or more distinct legal companies through commonly held ownership stakes, often complemented by social and familial ties. Business groups are ubiquitous in emerging markets and even in some developed economies.

The paper will be published in Strategic Management Journal.

The authors argue that although business groups may have initially emerged as alternatives to well-developed economic institutions, they are not necessarily substitutes for them.

"While the absence of well-developed capital markets may indeed have stimulated the emergence of business groups, we propose that business group affiliation and the scrutiny that maturing capital markets impose on firms that participate actively in them nevertheless can play a complementary role in influencing a firm's performance," said

Prashant Kale, one of the co-authors of the study and an associate professor of strategic management at Rice's Jones Graduate School of Business.

The authors find support for their predictions in a novel longitudinal data set of 10,453 business-group-affiliated and nonbusiness-group-affiliated Indian companies, comprising both listed and unlisted companies, during India's postliberalization period of 1994-2009.

"Business groups in emerging economies like India have been widely criticized as entities that suffer from a variety of agency issues," Kale said. "Family owners are seen to run business-group-affiliated companies for their own benefits to the detriment of other shareholders, and they are accused of tunneling capital for personal gain and of subverting proper corporate governance practices. This is possibly due to minimal oversight of market scrutiny and control.

"However, we show that a defining feature of business groups -- the listing of some of their affiliates on maturing capital markets -- may in fact help to mitigate some of these concerns. In addition, as capital markets and other institutions develop further, this effect may strengthen, allowing business groups to survive as an enduring -- rather than an endangered -- species."

The authors acknowledge that they tested and found support for their theoretical arguments only in the context of the Indian environment. "It would be useful to replicate this analysis for business groups in other settings and emerging economies too to establish the generalizability and external validity of our findings," Kale said.


Story Source:

The above story is based on materials provided by Rice University. The original article was written by Jeff Falk. Note: Materials may be edited for content and length.


Journal Reference:

  1. Raveendra Chittoor, Prashant Kale, Phanish Puranam. Business groups in developing capital markets: Towards a complementarity perspective. Strategic Management Journal, 2014; DOI: 10.1002/smj.2287

Cite This Page:

Rice University. "Business groups, capital market participation have complementary effects for Indian companies." ScienceDaily. ScienceDaily, 16 July 2014. <www.sciencedaily.com/releases/2014/07/140716123504.htm>.
Rice University. (2014, July 16). Business groups, capital market participation have complementary effects for Indian companies. ScienceDaily. Retrieved October 25, 2014 from www.sciencedaily.com/releases/2014/07/140716123504.htm
Rice University. "Business groups, capital market participation have complementary effects for Indian companies." ScienceDaily. www.sciencedaily.com/releases/2014/07/140716123504.htm (accessed October 25, 2014).

Share This



More Science & Society News

Saturday, October 25, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Texas Nurse Nina Pham Cured of Ebola

Texas Nurse Nina Pham Cured of Ebola

AFP (Oct. 25, 2014) — An American nurse who contracted Ebola while caring for a Liberian patient in Texas has been declared free of the virus and will leave the hospital. Duration: 01:01 Video provided by AFP
Powered by NewsLook.com
Ebola Protective Suits Being Made in China

Ebola Protective Suits Being Made in China

AFP (Oct. 24, 2014) — A factory in China is busy making Ebola protective suits for healthcare workers and others fighting the spread of the virus. Duration: 00:38 Video provided by AFP
Powered by NewsLook.com
WHO: Millions of Ebola Vaccine Doses by 2015

WHO: Millions of Ebola Vaccine Doses by 2015

AP (Oct. 24, 2014) — The World Health Organization said on Friday that millions of doses of two experimental Ebola vaccines could be ready for use in 2015 and five more experimental vaccines would start being tested in March. (Oct. 24) Video provided by AP
Powered by NewsLook.com
Microsoft Riding High On Strong Surface, Cloud Performance

Microsoft Riding High On Strong Surface, Cloud Performance

Newsy (Oct. 24, 2014) — Microsoft's Q3 earnings showed its tablets and cloud services are really hitting their stride. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:

Strange & Offbeat Stories

 

Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:  

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile iPhone Android Web
Follow Facebook Twitter Google+
Subscribe RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins