Operating performance during the COVID-19 pandemic: Is there a business group advantage?

In this paper, we study whether firms belonging to business groups (BG) have superior operating performance relative to stand-alone firms during the ongoing COVID-19 (COVID) pandemic. Our research is motivated by mixed empirical evidence on the performance of BG-affiliated firms. Using return on equity as a measure of operating performance and a sample of Indian firms, we first show that BG firms have lower ROE than stand-alone firms, on average. We disaggregate ROE into operating profitability (return on net operating assets - RNOA) and financial policy decisions (net borrowing costs - NBC and financial leverage - FFLEV) and show that while BG firms do not experience a significant change in NBC and FLLEV during the pandemic compared to stand-alone firms, relative to pre-COVID times, they experience a significant drop in RNOA. This is driven by much lower sales during the pandemic. Further, the relative decline in BG performance during the pandemic is driven by firms affiliated with smaller BGs, younger BGs, and less diversified BGs.