Performance of Business Groups in Emerging Markets: A Review of Literature

The past decade has witnessed a dramatic rise in research relating to the performance of business groups (BGs) which are defined as firms which, though legally independent, are bound together by numerous formal and informal ties and are accustomed to taking coordinated action. BGs exist in many countries with types such as Japanaese Keiretsus and Zaibastu, South Korean Chaebols, Hong Kong's Hongs, India's Business Houses, Russia's Oligarchs and China's Qiye Jituan. Diversified business groups characterize the industrial landscape of many emerging economies. The different studies conducted in this area show quite contradicting results with respect to the performance of business group affiliated firms and unaffiliated firms(standalone) as evidenced by variables like the Return on Assets(ROA), Tobin's q, Return on Capital Employed(ROCE) and other profitability measures. Some studies show that business group affiliated firms perform better than the standalone firms and several other studies in Indian and other emerging market contexts show that unaffiliated firms perform better than the group affiliated firms. The results are mixed, at best. The performance of business groups is influenced by several factors such as the institutional variables, diversification variables, ownership structures foreign and domestic, etc. The studies also indicate that the performance and affiliation does not always follow a linear relationship either increasing or decreasing but follows a quadratic relationship based on the context in which the firm is embedded. Future research should address issues like (i) does business group membership augment or diminish firm performance and are there any differences in the strategies followed by affiliated and non- affiliated (standalone) firms? (ii) Do the affiliated firms fare comparatively better in situations or economies characterized by institutional voids? And finally (iii) whether the group performance is enhanced by scale and scope differences and to what extent this is translated into higher market valuations vis- a- vis standalone firms?