the nature of diversified business groups a research design and two case studies diversified business groups dominate the private sectors of most of the world s economies several of these economies have undergone sudden policy changes that significantly increase domestic competitive intensity the authors demonstrate how the changes in corporate scope that accompany such competitive shocks can be used to weigh the importance of different explanations for the existence of diversified business groups the authors illustrate their reasoning by studying the restructuring of two of india s largest business groups following a comprehensive post 1991 package of policy reforms the case studies also elucidate aspects of the restructuring process that should inform larger sample empirical analyses copyright 1998 by blackwell publishing ltd

causes for changing performance of the business groups in a transition economy market level versus firm level factors in china this article investigates longitudinal changes in the relative performance of business groups utilizing data on listed companies in china over a 10 year period 1994 2003 using a measure of firm value in the stock market and panel regression methods this article finds the initially superior and eventually worsening performance of group affiliated firms compared with stand alone firms to explain the downward performance this article considers several alternative hypotheses namely institutional development increasing competition diversification discount agency costs from state ownership and agents asset diversion behavior this article has found certain differences in the explanatory power of each hypothesis while the institutional development hypothesis is somewhat weak the increasing discount for unrelated diversification as well as serious agency costs revealed in asset diversion in the business groups can better explain the longitudinal decrease in the performance of business groups we find that while diversification still creates values its marginal contribution has decreased over time and that while the state ownership variable negatively affects the values of firms in general it is not the cause of the worsening valuation of business groups copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

oligarchic family control social economic outcomes and the quality of government wealthy families as opposed to small public shareholders characterize ownership of the large corporate sectors of many countries around the world this paper shows that greater oligarchic family control over large corporations is associated with worse social economic outcomes it also correlates with more bureaucratic and more interventionist governments and less developed financial markets further tests show that red tape price controls and the lack of shareholder rights protection are the paramount factors relating to the extent of family control of large firms these results are broadly consistent with olson and others who argue that economically entrenched wealthy insiders pursue rent seeking activities to preserve the status quo and that this increases corruption and impedes growth

firms markets and the state institutional change and manufacturing sector profitability variances in india we assess absolute magnitudes relative importance and intertemporal differences in firm industry and business group effects in explaining the variance of indian manufacturing firms profitability over the 26 year period between 1980 1981 and 2005 2006 we stratify the data by institutional phases to place emphasis on the role of changing institutional factors in an emerging economy first as a regime of command and control transits to partial liberalization between 1985 and 1991 and then to an open competitive market economy after 1991 thereafter financial reforms occur followed by legal reforms we find that liberalization significantly affects and alters the relative importance of firm industry and group effects firm effects are always important whether in a command and control regime with benefits accruing from protectionism and political rent seeking or in liberalized periods where firm specific capabilities and dynamic efficiencies are valued industry effects are significant in the command and control regime when mandatory sector placement benefits firms in industries with superior profits and in the liberalized period when the choice of the industry segment in which to operate is open to firms thereafter industry effects dissipate business group effects matter in explaining profitability variances group effects magnitudes however do not change significantly over time

organizational efficiency and monopoly power the case of french industrial groups abstract in this paper we examine the respective roles of efficiency and of market power considerations in explaining why industrial groups are the predominant form of organization in specific industries our econometric analysis of french industrial groups suggests that administrative and organizational efficiency is an adequate explanation for the existence of these groups and that rivalry between groups differently integrated and diversified is more likely to be the case than collusion

business group affiliation and firm search behavior in india responsiveness and focus of attention this paper investigates the effects of organizational form on problemistic search we contrast how indian firms affiliated with business groups and unaffiliated firms evaluate performance and react by adjusting their internal technology search and external market search we propose that compared with unaffiliated firms business group affiliated bg affiliated firms are more externally oriented in setting aspiration levels and more likely to respond to low performance in the market domain we find support for an external orientation of bg affiliated firms and find that group affiliation determines the responsiveness to performance feedback in different search domains the findings suggest a need to add considerations of organizational form and governance to the theory of organizational search

models of currency crises with self fulfilling features the discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency market equilibria after describing an illustrative model in which high unemployment may cause an exchange rate crisis with self fulfilling features the paper reviews some other self reinforcing mechanisms recent econometric evidence seems consistent with the practical importance of these mechanisms

the short term mortality consequences of income receipt many studies find that households increase their co nsumption after the receipt of expected income payments a result inconsistent wit h the life cycle permanent income hypothesis consumption can increase adverse healt h events such as traffic accidents heart attacks and strokes in this pape r we examine the short term mortality consequences of income receipt we find that mortality increases following the arrival of monthly social security payments re gular wage payments for military personnel the 2001 tax rebates and alaska permane nt fund dividend payments the increase in short run mortality is large potential ly eliminating some of the protective benefits of additional income

the governance structure of the japanese financial keiretsu abstract we rationalize the cross holdings of debt and equity within the japanese keiretsu as a contingent governance mechanism through which internal discipline is sustained over time the reciprocal allocation of control rights supports cooperation and mutual monitoring among managers through a coalition enforced threat of removal from control in financial distress this threat is less effective and the governance mode shifts to hierarchical enforcement under main bank leadership the model is consistent with the capital structure the distribution of claims the extent of intragroup trading and patterns of investor intervention within the groups

the evolving impact of combinatorial opportunities and exhaustion on innovation by business groups as market development increases the case of taiwan business groups are key sources of innovation in emerging market economies but we understand little about why innovativeness differs across groups and over time variation in the density of intragroup buyer supplier ties which are common structural linkages among group affiliates can help explain both cross sectional and temporal heterogeneity of group innovativeness we argue that greater buyer supplier density within a group initially creates combinatorial opportunities that contribute to group innovativeness but ultimately generates combinatorial exhaustion that constrains innovation combinatorial exhaustion will set in at lower levels of density as the market environment becomes more developed because the opportunity costs of local search increase the research introduces a dynamic argument to studies of business group innovation this paper was accepted by bruno cassiman business strategy

embeddedness and contractual relationships in china s transitional economy interfirm contracts represent common economic relations in the marketplace they are also deeply embedded in social relations and social institutions in the context of china s transitional economy this study examines how three mechanisms economizing transaction costs network based social relations and institutional links affect interfirm contractual relationships in 1 the choice of search channels for contractual partners 2 the formality and provisions in a contract and 3 the intensity of social interaction in contract implementation empirical evidence is drawn from information collected on 877 contracts from 620 firms in two chinese cities beijing and guangzhou the authors find distinct roles of social relations institutional links and regulatory environments in the initiation of contractual partners and the forms of contracts adopted whereas transaction specific factors play a significant role in the intensity of social interaction in contract implementation these findings suggest the interplay among economic calculativeness social networks and institutional links and the complementarity in the underlying theoretical ideas

are group affiliated firms really more profitable than nonaffiliated the role of corporate center in influencing the economic performance of business units has been a central research topic in the industrial organization and strategic management literature a common finding is the limited corporate and business group effects recently an emerging line of studies argues that the market inefficiencies and institutional voids in emerging markets can be overcome more efficiently by large diversified business groups than by non group small firms some empirical evidence also shows that non group small firms are significantly less profitable than group affiliated firms this paper raises this issue by empirically investigating the influence of group affiliation on the return on assets and tobin s q of 340 group affiliated firms versus 423 non group firms in taiwan during the period of 1997 1999 the statistical results show that group affiliation can not always create value for member firms the size of the business group matters when affiliated with the largest business groups member firms indeed show improved stock market performance but when firms are affiliated with small and medium sized groups their accounting performance suffers findings of this paper suggest a threshold effect and a u shape relationship between group affiliation and profitability in emerging economies

behavioral responses to inheritance tax evidence from notches in france abstract for the first time we exploit quasi experimental variation to investigate the impact of inheritance taxation on wealth accumulation using bunching and difference in differences methods we directly estimate several behavioral responses during lifetime rather than relying solely on observations at death our empirical findings shed new light upon wealth accumulation and bequest motives taken together the small responses to inheritance tax estimated cannot be supported by the desire to retain control over wealth

measuring permanent responses to capital gains tax changes in panel data the authors use panel data and information about differences in state tax rates to separate the effects of transitory and permanent tax rate changes on capital gains realizations behavior the estimated effect of permanent change is substantially smaller than the effect of transitory change the difference is even larger than differences between estimates from past micro data studies which have primarily measured the transitory effect and time series studies which have primarily measured the permanent effect the authors results resolve a long standing conflict between micro data and time series studies of how marginal tax rates affect capital gains realizations behavior copyright 1994 by american economic association

dying to save taxes evidence from estate tax returns on the death elasticity this paper examines data from u s federal tax returns to shed light on whether the timing of death is responsive to its tax consequences we investigate the temporal pattern of deaths around the time of changes in the estate tax system periods when living longer or dying sooner could significantly affect estate tax liability we find some evidence that there is a small death elasticity although we cannot rule out that what we have uncovered is ex post doctoring of the reported date of death

capital markets and firm organization how financial development shapes european corporate groups we investigate the effect of financial development on the formation of european corporate groups because cross country regressions are hard to interpret in a causal sense we exploit exogenous industry measures to investigate a specific channel through which financial development may affect group affiliation internal capital markets using a comprehensive firm level data set on european corporate groups in 15 countries we find that countries with less developed financial markets have a higher percentage of group affiliates in more capital intensive industries this relationship is more pronounced for young and small firms and for affiliates of large and diversified groups our findings are consistent with the view that internal capital markets may under some conditions be more efficient than prevailing external markets and that this may drive group affiliation even in developed economies this paper was accepted by bruno cassiman business strategy

networks of innovators a synthesis of research issues abstract this paper will first summarise some key findings of empirical research in the 1960s on the role of external sources of scientific technical and market information in successful innovation by business firms this work demonstrated unambiguously the vital importance of external information networks and of collaboration with users during the development of new products and processes moreover the dilemmas of cooperative research in competitive industries were recognised and studied long ago 35 62 76 what then is new about the present wave of interest in networks of innovators are there new forms of organisation or new technologies or new policies which justify renewed research efforts since they go beyond those developments already analysed in earlier empirical and theoretical work section 2 reviews the evidence of new developments in the 1980s in industrial networks regional networks and government sponsored innovative activities it shows that there has indeed been a major upsurge of formal and semi formal flexible networks in the 1980s including some new types of network it also shows that some older forms of research cooperation have been modified and transformed the papers at montreal largely concentrated on the role of regional supplier networks which are a good example of such new wine in old bottles this paper attempts to locate the regional network discussion within a wider context of new developments in networking section 3 discusses the causes of these new developments and whether they are likely to remain a characteristic of national and international innovation systems for a long time to come or prove to be a temporary upsurge to be overtaken later by a wave of take overs and vertical integration finally section 4 sums up some of the other key issues which require further research and debate and the implications for social science theory

country of origin effects of foreign investments in the people s republic of china this paper investigates the existence of country of origin effects occurring in foreign investments in the people s republic of china the eclectic theory of international production posits that the pattern of foreign investments should vary by country of origin this aspect of the eclectic theory is difficult to test directly especially in developing countries because of the relatively small numbers of foreign investment projects in a single country the data used in this research cover 1 665 sino foreign joint ventures jvs from 1979 to 1985 allowing a more reliable test of this aspect of the theory statistical evidence suggests that country of origin effects are indeed present in foreign investment activities in china

adapting to radical change strategy and environment in piece rate adoption during china s transition adaptation to radical change is central to research in organization theory and some of the most dramatic examples of environmental change have occurred recently in transition economies such as china i take advantage of change during china s economic reform to study the relative importance of organizational and environmental factors in producing innovative managerial response i find that strategic choice predicted innovation in the early stages of reform but environmental factors increased in salience over time intrafirm support communist party connections and a market orientation produced innovation early in reform simple imitation of others was also salient in early years as reform progressed managers increasingly imitated other profitable firms and drew on their own experience my results inform an understanding of both the process by which innovation occurs and firm behavior in transition economies

living to save taxes does taxation affect the timing of death this is important as an example of how behavior might be affected by economic incentives we study how three changes in swedish inheritance taxation 2004 2005 have affected daily all cause mortality our first main result is that mortality decreased by 16 percent the day before the beginning of expected tax reductions second there was no corresponding effect before an unexpected tax reduction

business groups in a market economy abstract the purpose of this paper is to examine the nature and significance of the interfirm relationship called the business group first the nature of the japanese business group is discussed it is then pointed out that the business group is not a phenomenon unique to japan and an effort is made to explain the significance of the business group in the context of a market economy using the williamsonian approach to questions of internal organization and the market finally the relationship between the input output relationship of the firms and their group affiliation is tested

the king and i monarchies and the performance of business groups large highly diversified business groups are a prominent feature of the industrial landscape of most emerging economies their competitiveness has been the topic of much debate in the international business literature this paper intervenes in this debate by utilising data from thailand and demonstrating that whereas business groups create value by filling institutional voids the political context of a country and the investment of powerful actors in particular groups can cause great variance across business groups performance copyright oxford university press

does group affiliation improve firm performance the case of chinese state owned firms this paper analyses the performance of state owned business groups in china group affiliation can be important for economic policy evaluation since the chinese government promotes the formation of business groups as a first step in the process of reforming state enterprises into modern corporations the analysis applies a range of econometric techniques to a sample of 657 chinese state owned firms in 2005 and shows that group affiliation has a robust positive effect on performance group affiliation may in this respect provide a successful alternative to large scale privatisation

organization and management in the midst of societal transformation the people s republic of china twenty five years of economic reform has propelled china to the center of the world s economic stage based on current trends in the foreseeable future china is likely to become the largest economy in the world china s dramatic growth may be envied by other developing economies but for management scholars it presents an exciting intellectual puzzle in this paper we describe the empirical context of china today review contemporary research on chinese management and organizations and describe the nine papers in this special issue oforganization science the papers provide a close examination of how massive corporate transformation in china has influenced interfirm relationships affected opportunity structures and social processes and modified individual behaviors within firms we identify the many paradoxes in this intellectual terrain and present a guide to the challenging research agenda ahead we recommend that scholars of organizations think deeply about china as a context and consider china as an empirical setting where the boundaries of existing knowledge on organizations can be extended

coase revisited business groups in the modern economy ronald coase s celebrated query as to why economic actors typically aggregate into entities called firms rather than transacting as individuals in a market has engendered a vigorous stream of research this paper asks a parallel question why is it that in all modern economies firms themselves aggregate into larger entities often more stable than any literature predicts which are here referred to as business groups after establishing some working definitions and discussing the curious conjunction of empirical importance and analytical invisibility of business groups an attempt is made to establish the most significant dimensions along which such groups vary we end with some speculations on the role of these groups in economic development copyright 1995 by oxford university press

international overborrowing a decomposition of credit and currency risks summary the severity of the financial crises enveloping the tiger economies of southeast asia in 1997 came as a surprise to many observers this paper uses a simple fisherian model of the overborrowing syndrome to compare the asian crises of 1997 with earlier overborrowing episodes in mexico and chile while important similarities exist the crises in southeast asia have been exacerbated by the unhedged foreign exchange positions of asian banks these open currency positions not only imposed significant additional losses on the banks following devaluation they also magnified the scale of overborrowing during the cycle s initial boom phase failure to limit the exposure of banks to foreign exchange risk therefore increased the magnitude of the boom bust overborrowing cycle both ex ante and ex post the paper highlights the importance of effective regulation and supervision of capital markets with a focus on limiting the speculative currency positions of banks especially those that form the core of the domestic payments system and therefore enjoy a possibly implicit public guarantee improving the institutional infrastructure of financial supervision is the only effective way of mitigating the macroeconomic costs of overborrowing

do taxes matter the impact of the tax reform act of 1986 do taxes matter is the first systematic examination of the actual effects of the tax reform act of 1986 the most important u s income tax reform of the last four decades it presents basic information on and an analysis of a variety of different aspects of economic behavior in order to discover whether the observed changes coincide with the predictions of standard public finance models prior to implementation of the new law supporters and opponents made numerous forecasts about its effect on savings corporate investment and other major determinants of the country s economic health the general finding of these original contributions is that the effects of tax reform turned out to be smaller than had been anticipated commissioned by the office of tax policy research of the university of michigan eight of the studies focus on different sectors of the economy reviewing the predictions and carefully analyzing the evidence to determine actual effects the ninth study draws together the results to find lessons for future changes in tax policy joel slemrod is professor of business economics and public policy and director of the office of tax policy research at the university of michigan contents the economic impact of tax reform act of 1986 joel slemrod investment tax policy and the tax reform act of 1986 alan j auerbach kevin hassett the impact of the 1986 tax reform on personal saving jonathan skinner daniel feenberg effects of the tax reform act of 1986 on corporate financial policy and organizational form roger h gordon jeffrey k mackie mason taxation and housing markets preliminary evidence on the effects of recent tax reforms james m poterba the impact of the tax reform act of 1986 on foreign direct investment to and from the united states joel slemrod the impact of tax reform on charitable giving a 1989 perspective charles t clotfelter the impact of the tax reform act of 1986 on state and local fiscal behavior paul n courant edward m gramlich foreign responses to u s tax reform john whalley lessons for tax reform henry j aaron

understanding the behavior of business groups a dynamic model and empirical analysis abstract business groups play significant economic roles in many countries motivated by the observation that the literature on business groups is ever expanding yet providing ambiguous or conflicting results based on empirical investigations this paper intends to first develop a theoretical model to explain behavior and performance of business groups and then conduct complementary empirical analysis drawing on penrose s 1959 resource based theory of firm growth this paper models the firms of which some key resources are lumpy or indivisible and thus they must be purchased or installed only in certain sizes this premise in the basic model leads to an advantage for business group firms relative to stand alone firms without respect to the existence of market failure the model also predicts that business group firms will be more profitable in terms of profit to sales and will have higher sales and asset leading to faster growth other things being equal implications of such advantage on firms performance and behavior are investigated first using numerical experiments based on a dynamic optimization model and then regression analyses based on the korean firm data it turns out that a set of testable predictions derived from the basic theoretical model is generally consistent with the conclusions from numerical experiments and empirical tests

what does japanese trade structure tell us about japanese trade policy some argue foreign access to japanese markets remains tightly controlled and that if japan is to be a member in good standing of the international economic system japan must do more than just adhere to the formal rules of the gatt japan must show by the results of its international economic transactions that foreign access to its market is not tightly controlled as this point of view is increasingly dominating american economic diplomacy with japan it is particularly important that its premise be examined first i examine japan s growth record and trade record to the extent that japan s trade performance is different i explore whether the difference can legitimately be attributed to japanese policies this paper finds that neither the price behavior of japanese firms nor the pattern and volume of what japan imports or exports suggests that japan s trade regime is different some of japan s economic institutions may be distinctive but there is little evidence they produce outcomes which distort the international economic system what remains to be explained is the conviction of so many that japan is more a parasite than a pillar of the international economic system the record of economic research directly and indirectly bearing on this issue does not support such a conclusion at all

taxes and the timing of births because the tax savings of having a child are a realized only if the birth takes place before midnight january 1 the incentives for the marginal birth are substantial using a sample of children from the national longitudinal survey of youth we find that the probability that a child is born in the last week of december rather than the first week of january is positively correlated with tax benefits we estimate that increasing the tax benefit of having a child by 500 raises the probability of having the child in the last week of december by 26 9 percent

risk capital financing and the separation of ownership and control in business groups abstract this paper analyses business groups composed of legally independent firms connected through a network of cross shareholdings a model which allows to calculate the value of the firms of a group and the integrated ownership shares held by an outside stockholder is described a taxonomy for the collection of risk capital generalizing the one which applies for a single firm is proposed the connection between the process of raising risk capital and the separation of ownership from control in business groups is demonstrated and given a formal mathematical description empirical evidence relating to the amount of risk capital collected by italian business groups in the 80s and to the extent of the divorce between ownership and control is also provided

institutional voids or organizational resilience business groups innovation and market development in latin america summary the paper compares the innovativeness of group affiliated firms gafs and standalone firms safs and it investigates how country specific institutional factors affect the group innovation relationship the paper analyzes the contrasting predictions of two competing views the institutional voids and the organizational resilience theses the empirical analysis focuses on a large sample of firms in latin america in line with the organizational resilience thesis the results point out that the superior innovation performance of gafs is stronger for national economies with more efficient financial legal and labor market institutions

the underpinnings of country risk assessment abstract this paper surveys the history and current status of country risk assessment the motivation is to understand why it is that country risk assessors have such a poor track record in anticipating the onset of financial crises the development of the field reflects changes in the composition of international capital flows these changes have confounded a definition of country risk especially if a definition is centered on a particular event it is then argued that the field has reached an impasse and this impasse is related to the methods of abstraction and the current crisis of vision within the science of economics this crisis of vision as it pertains to theories of financial crises has led to increased reliance on quantitative methods in the field of country risk the paper concludes by proposing a new direction for the field the first step towards which is to recognize that the object of country risk assessment is not to monitor for a particular event or symptom of financial crisis but rather to monitor for a particular state of the economy

ownership and firm innovation in a transition economy evidence from china we examine innovation performance of firms in a transition economy from an ownership perspective we focus specifically on the relationship between ownership structures and firm innovation performance drawing on data from 548 chinese firms we find volume of patent registration to be most strongly influenced by foreign ownership in the firm along with firm affiliation within a business group the influence of state and institutional ownership on innovation performance is positive but lagged contrary to expectations insider ownership leads to lower innovation performance and concentrated ownership has no significant impact our study has two principal contributions firstly we utilize a comprehensive treatment of ownership characteristics overcoming weakness in previous studies that have used a more narrow focus on ownership type secondly we contribute to understanding of how firms in transition economies build indigenous capabilities for innovation by drawing attention to the interplay of foreign and domestic control of agents innovation

the impact of business group affiliation on performance evidence from china s national champions an important aspect of china s economic reforms has been an ambitious policy to develop 100 or so large internationally competitive business groups very little is known about these national champion groups or the benefits to subsidiary firms of belonging to them this study building from insights and methods used in existing literature examines the performance of subsidiaries affiliated to china s national champion groups our results find that they perform comparatively well we discuss possible reasons for this finding and comment more generally on the important role that business groups now play in china s reform and development

disentangling the incentive and entrenchment effects of large shareholdings this article disentangles the incentive and entrenchment effects of large ownership using data for 1 301 publicly traded corporations in eight east asian economies we find that firm value increases with the cash flow ownership of the largest shareholder consistent with a positive incentive effect but firm value falls when the control rights of the largest shareholder exceed its cash flow ownership consistent with an entrenchment effect given that concentrated corporate ownership is predominant in most countries these findings have relevance for corporate governance across the world

social times of network spaces network sequences and foreign investment in hungary to model from its inception interenterprise network formation and its interaction with foreign investment across an entire epoch of rapid and profound economic transformation the authors gathered data on the complete ownership histories of 1 696 of the largest hungarian enterprises from 1987 to 2001 they develop a social sequence analysis to identify distinctive pathways whereby firms use network resources to buffer uncertainty hide or restructure assets or gain knowledge and legitimacy during this period networked property grew stabilized and involved a growing proportion of foreign capital cohesive networks of recombinant property were robust and in fact integrated foreign investment although multinationals through their subsidiaries dissolved ties in joint venture arrangements the authors find evidence that they also built durable networks these findings suggest that developing economies do not necessarily face a forced choice between networks of global reach and those of local embedde

strategy structure and performance of korean business groups a transactions cost approach the authors use the transactions cost approach to analyze the diversification strategy and the resulting structure chosen by korean business groups to overcome market imperfections prevalent in developing countries business groups that have multidivisional struc ture are thought to show superior economic performance because such s tructure reduces transactions costs arising from organizational failure also major korean business groups have a relational structure showing both vertical integration and the characteristics of the conglomerate the authors modify the model of r e caves and m uekusa 1976 used for japan to obtain the empirical result tha t group affiliated firms show superior economic performance copyright 1988 by blackwell publishing ltd

business groups and the determinants of corporate ownership this paper focuses on cross industry differences in the pattern of corporate ownership in the italian manufacturing and mining sectors the authors draw attention to factors responsible for the diffusion of ownership the paper relies on econometric estimates which confirm the role played by economies of scale r d intensity and specialization of human capital in shaping corporate ownership structures more importantly the econometric findings point out that the internal fund allocation function extensively performed by large diversified business groups significantly distorts the pattern of corporate ownership specifically in low tech industries where economies of scale are negligible and human capital is unspecialized when a considerable share of output is attributable to firms controlled by groups whose core activities demand substantial wealth the ownership share held by unrestricted residual claimants turns out to be well above the value one would otherwise expect the opposite phenomenon occurs in high tech scale intensive industries c 1996 academic press limited copyright 1996 by oxford university press

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

estimating the performance effects of business groups in emerging markets business groups confederations of legally independent firms are ubiquitous in emerging economies yet very little is known about their effects on the performance of affiliated firms we conceive of business groups as responses to market failures and high transaction costs in doing so we develop hypotheses about the effects of group affiliation on firm profitability affiliation could either boost or depress firm profitability and members of a group are likely to earn rates of return similar to other members of the same group using a unique data set compiled largely from local sources we test for these effects in 14 emerging markets argentina brazil chile india indonesia israel mexico peru the philippines south africa south korea taiwan thailand and turkey we find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine group affiliation appears to have as profound an effect on profitability as does industry membership yet strategy scholars have a much clearer grasp of industries than of groups moreover membership in a group raises the profitability of the average group member in several of the markets we examine this runs contrary to the wisdom conventional in advanced economies that unrelated diversification depresses profitability overall our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts conclusions drawn in one context may well not apply to another copyright 2001 john wiley sons ltd

the debt wish rent seeking by business groups and the structure of corporate borrowing in india business groups play an important role in emerging economies the transactions cost perspective which has dominated our understanding of such groups argues that the emergence of business groups is a natural response to market failures in developing countries in this paper we propose an alternate theoretical perspective the rent seeking view that takes these groups as engaging in coordinated lobbying for the capture of rents created by governments we develop and implement an empirical strategy to test for the rent seeking view drawing from the property rights theory of corporate finance we find strong empirical support for the rent seeking view using a large cross sectional data set of firms in india

filling institutional voids in emerging economies the impact of capital market development and business groups on m a deal abandonment business groups may fill institutional voids in emerging economies but empirical research is lacking as to when and how institutional voids affect economic behavior of individual firms we examine the effect of institutional voids in capital markets on individual transactions in emerging economies focusing on m a deals that were abandoned after being publicly announced m a deals may fall through when unexpected information is brought to light or financing difficulties arise at the country level capital market development can lower the probability of m a deal abandonment by facilitating the flow of information and capital at the firm level when acquirers are affiliated with business groups development of internal capital markets can also lower this probability facilitating completion of the transaction and the flow of information this effect of business groups however decreases as the external capital market the institution replaced by their internal markets develops and its benefits become widely available to non business groups the results of our empirical analyses on m a transactions in nine emerging economies over 21 years support our arguments

the determinants of expatriate staffing by japanese multinationals in asia control learning and vertical business groups we empirically examine the determinants of the decision whether or not to appoint an expatriate as the managing director of overseas affiliates for a sample of 844 japanese manufacturing affiliates operating in asia in 1995 confirmation is found for hypotheses derived both from a control and coordination perspective on expatriation and from a knowledge creation and learning perspective strategic dependence of the parent on the affiliate increases the propensity to appoint expatriates whereas localisation of the affiliate reduces it organisational experience in the country both by the affiliate and by the firm increases the probability that host country nationals will be appointed inter firm relationships within vertical keiretsu groups impact on expatriation policies through inter organisational knowledge exchange in host countries and the mitigation of localisation requirements owing to intra group transactions

japanese firms and the decision to invest abroad business groups and regional core networks the determinants of the decision by japanese firms to set up manufacturing plants in southeast asia europe and north america are analyzed using micro data on the behavior of firms in the electronics industry while firm specific intangible assets based on r d and marketing efforts are positively related to the decision to invest in europe and north america investment in southeast asia is mainly related to human resources and driven by interfirm ties within horizontal and vertical business groups the empirical results suggest that membership of horizontal keiretsu relaxes liquidity constraints while the manufacturing networks of horizontal and vertical keiretsu in southeast asia facilitate the establishment of manufacturing plants by member firms copyright 1996 by mit press

an analysis and critique of the bis proposal on capital adequacy and ratings abstract this paper examines two specific aspects of stage 1 of the bank for international settlement s bis s proposed reforms to the 8 risk based capital ratio we argue that relying on traditional agency ratings could produce cyclically lagging rather leading capital requirements resulting in an enhanced rather than reduced degree of instability in the banking and financial system despite this possible shortcoming we believe that sensible risk based weighting of capital requirements is a step in the right direction the current risk based bucketing proposal which is tied to external agency ratings or possibly to internal bank ratings however lacks a sufficient degree of granularity in particular lumping a and bbb investment grade corporate borrowers together with bb and b below investment grade borrowers severely misprices risk within that bucket and calls at a minimum for that bucket to be split into two we examine the default loss experience on corporate bonds for the period 1981 1999 and propose a revised weighting system which more closely resembles the actual loss experience on credit assets

third world copycats to emerging multinationals institutional changes and organizational transformation in the indian pharmaceutical industry this article investigates how indian pharmaceutical firms facing discontinuous institutional changes in their domestic environment due to economic liberalization and intellectual property reforms have undertaken organizational transformation internationalization of resources and product markets constitutes an important component of organizational transformation for local firms in emerging economies using longitudinal data on 206 indian pharmaceutical firms from 1995 2004 we find that firms access to international technological and financial resources enables product market internationalization furthermore we theorize and find support for our predictions that the association between international resources and markets is conditioned by time and business group affiliation and product market internationalization affects financial performance several implications thus emerge for theory and practice associated with the sources of competitiveness in emerging economy firms and their transformation into globally competitive multinational firms

capital structure in transition the transformation of financial strategies in china s emerging economy during economic transition firms must dramatically reduce their financial dependence on the state and begin to borrow from nonstate capital sources this paper draws on institutional and resource dependence theories to examine this fundamental transformation of firm capital structure during china s transition i propose that managers borrowed from external sources even when internal funds were available because retained earnings were considered state assets firms used retained earnings to signal financial health but borrowed externally to reduce dependence on the state uncertainty during transformation produced interfirm imitation of borrowing strategies particularly imitation of local and high status others i argue that the dynamics of market development shaped firm borrowing strategies and that these strategies are best viewed as trajectories over time analysis of survey data on the 1980 1989 capital structure of formerly state owned firms provides support for these arguments and highlights the importance of institutional context in understanding corporate borrowing and strategic decision making

business groups and social welfare in emerging markets existing evidence and unanswered questions abstract this paper reviews existing studies of the role of emerging market business groups a ubiquitous but poorly understood organizational form i first suggest that understanding the definition of business groups is itself an interesting albeit under studied research issue i then argue that the existing evidence suggests that the performance effects of group affiliation are large and generally positive there is substantial evidence that part of this is due to welfare enhancing functions originating in the idea that groups substitute for missing outside institutions but that part is also due to welfare reducing minority shareholder exploitation evidence is lacking on the extent to which groups facilitate rent seeking or the exercise of market power evidence is also lacking on the extent to which groups hamper the future development of markets the paper identifies areas where research is needed before current competition policy experiments in countries like china india and korea can be evaluated

the importance of bequests and life cycle saving in capital accumulation a new answer as the workhorse of consumption and saving research for the past four decades the life cycle model has proved flexible and useful for examining a variety of questions in a classic paper albert ando and franco modigliani 1963 p 56 stated a key assumption of the basic model t he individual neither expects to receive nor desires to leave any inheritance although the authors contended that the absence of a bequest motive was not critical to the heart of their results the assumption set off a long standing battle over the relative importance of different motives for saving in an influential study laurence kotlikoff and laurence summers 1981 estimated that a large fraction of the u s capital stock was attributable to intergenerational transfers modigliani and his collaborators vigorously disagreed and based on their own empirical work claimed that life cycle saving was the primary source of capital accumulation modigliani 1988 subsequent work has failed to reach a consensus since this debate began an important advance in the consumption literature has been the incorporation of uncertainty in life cycle models see e g r glenn hubbard et al 1995 we argue that allowing for uncertainty resolves the controversy over the importance of life cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished a dollar saved today simultaneously serves both a precautionary life cycle function guarding against future contingencies such as health shocks or other emergencies and a bequest function because in the likely event that the dollar is not absorbed by these contingencies it will be available to bequeath to children or other worthy causes under this view households have a bequest motive but bequests are given i e the motive is operative in only some states of the world wealth is something like traveler s checks you take them along on vacation just in case but odds are they will remain uncashed and available for sundry goods after the journey is complete we first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households declared focus on life cycle saving finally we consider implications of our analysis

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

the validity of profits structure studies with particular reference to the ftc s line of business data the simple proposition that consumerdamaging collusion is more likely to occur when there are fewer competitors has given rise not only to legal restrictions of economic activity thought to restrict output but also to an enormous amount of empirical work attempting to relate market concentration to the exercise of monopoly power most such studies measured market structure by an index of concentration for example four firm concentration or herfindahl and performance by accounting profit for example net profit divided by assets or price cost margins sales less direct costs divided by sales from the positive statistically significant correlations often found between greater concentration and profit with other factors presumably accounted for some researchers conclude that increases in concentration are anticompetitive and that concentration therefore is bad the concentration profits studies have been criticized essentially on two grounds one is that the positive relationship is not indicative of collusive behavior in particular oliver williamson 1968 john mcgee 1971 harold demsetz 1973 1974 and sam peltzman 1977 point out that higher profits could result from efficiencies experienced by large firms which resulted both in greater market shares and high levels of concentration analytical arguments show that higher profits logically follow as much from lower costs that are associated with higher levels of concentration as from collusion determined higher prices some empirical evidence that supports this belief is presented by demsetz peltzman and bradley gale and ben branch 1982 however their findings have been contested on the grounds that the data used are biased or inadequate or that the researchers have not demonstrated that the observed higher profits greater concentration relationship was caused by lower costs 2 the second criticism is that available data provide an inadequate basis for such conclusions the concentration numbers are based usually on industries defined by the commerce department s standard industrial classifications sic the sic definitions tend to be supply production rather than demand determined include nonhomogeneous products and exclude sales of similar products that are included in different sic groups or are imported the profit data are taken from accounting reports that provide poor measures of economic values weiss 1974 describes many of these problems however he does not believe that these shortcomings invalidate the studies as weiss 1979 concludes

exchange structures in transition lending and trade relations in chinese business groups the networks of interfirm relations that developed in business groups during economic transition are central to china s reform and are becoming an important part of the country s emergent economic structure using a recent and original data set that includes direct observations of economic choices made by firms the process by which these interfirm lending and trade ties emerged and evolved in the early stages of reform is explored initially information from sources external to the network dominated the formation and direction of exchange relations firms turned to their prior connections took advantage of market position and drew on bureaucratic power to develop alliances over time internal influences gained importance and managers increasingly drew on internal nontrade relations and other indicators inside the business group to identify lending and trade partners the results demonstrate the central but changing role that social relations and environmental cues played in the creation of economic structure during china s transition this study also contributes to an understanding of the processes of organizational adaptation to a major economic transition and interfirm alliance formation more generally the findings reveal that firms select exchange partners of known reputation and solicit relations that reduce uncertainty even when there is a cost involved

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

engineering growth business group structure and firm performance in china s transition economy business groups have received increasing attention from academics interested in interorganizational relations and their impact on firms as part of industrial reform the chinese government began in the mid 1980s to encourage firms to form business groups with structural characteristics that promised to enhance financial performance and productivity using 1988 90 panel data on china s 40 largest business groups and their 535 member firms the study finds that the presence and predominance of interlocking directorates and finance companies in business groups improved the financial performance and productivity of the groups member firms in addition firms in groups with nonhierarchical organizational structures performed better than firms in hierarchical groups suggesting that complete integration into a hierarchical organization is not an optimal strategy

born on the first of july an un natural experiment in birth timing abstract it is well understood that government policies can distort behavior but what is less often recognized is that the anticipated introduction of a policy can introduce its own distortions we study one such introduction effect using evidence from a unique policy change in australia in 2004 the australian government announced that children born on or after july 1 2004 would receive a 3000 baby bonus although the policy was only announced seven weeks before its introduction parents appear to have behaved strategically in order to receive the benefit with the number of births dipping sharply before the policy commenced on july 1 2004 more australian children were born than on any other single date in the past thirty years we estimate that over 1000 births were moved so as to ensure that their parents were eligible for the baby bonus with about one quarter being moved by more than one week most of the effect was due to changes in the timing of induction and cesarean section procedures we find evidence to suggest that babies who were shifted into the eligibility period were more likely to be of high birth weight two years later on july 1 2006 the baby bonus was increased and we find that this again caused births to be moved from june to july these birth timing events represent an opportunity for health researchers to study the impact of planned birthdays and hospital management issues

are credit ratings procyclical abstract this paper studies the influence of the state of the business cycle on credit ratings in particular we assess whether rating agencies are excessively procyclical in their assignment of ratings our analysis is based on a model of ratings determination that takes into account factors that measure the business and financial risks of firms in addition to indicators of macroeconomic conditions utilizing annual data on all us firms rated by standard poor s we find that ratings do not generally exhibit excess sensitivity to the business cycle in addition we document that previously reported findings of a secular tightening of ratings standards are not robust to a more complete accounting of systematic changes to measures of risk

on the costs of a bank centered financial system evidence from the changing main bank relations in japan we examine the effects of bank firm relationships on firm performance in japan when access to capital markets is limited close bank firm ties increase the availability of capital to borrowing firms but do not lead to higher profitability or growth the cost of capital of firms with close bank ties is higher than that of their peers this indicates that most of the benefits from these relationships are appropriated by the banks finally the slow growth rates of bank clients suggest that banks discourage firms from investing in risky profitable projects however liberalization of financial markets reduces the banks market power the close relationship between manufacturing firms and financial institutions in japan has recently been at the center of the debate on the appropriate financial system for the reforming economies of eastern europe as opposed to the anglo saxon separation of finance and industry long term ties between main banks and their client firms involving bank loans bank equity holding and some bank appointed personnel which are common in japan and germany have often been described as a growth oriented financial system that could serve the needs of developing and reformed economiies better than anonymous capital markets modeled after the arnerican and british financial systems the claim that close ties between investmentoriented banks and industrial firms could help overcome the difficulties of relative backwardness dates back to gerschenkron 1962 who investigates european development rosovsky 1961 applies gerschenkron s framework to the analysis of japanese growth more recently aoki patrick and sheard 1994 hoshi kashyap and loveman 1994 and teranishi 1993 among others portray the close ties between finance and industry in japan as an important factor in the international competitiveness of modern japanese

springboard internationalization by emerging market firms speed of first cross border acquisition according to the springboard perspective emerging market multinationals seek strategic assets aggressively from the outset in this paper we investigate the role of firms institutional embeddedness in terms of age and affiliation to business group on their aggressive internationalization pursuits an issue which has remained less explored in international business scholarship this study based on 8163 indian listed firms over 18 years identifies a trend that younger firms founded in the liberalized era post 1991 and unaffiliated firms are more likely to pursue aggressive internationalization by conducting their first cross border acquisition cba faster among affiliated firms younger ones are relatively faster in conducting their first cba furthermore the evidence signals a moderating impact of inter group heterogeneity in terms of group level assets and foreign investments on the relationship between firm age and aggressive internationalization

local governments as industrial firms an organizational analysis of china s transitional economy despite widespread skepticism about government ownership in transitional economies china s rapid industrial growth has been led by public enterprises kornai s theory of soft budbet constraints born of the failure of earlier hungarian reforms fosters such skepticism but it assumes as fixed organizational characteristics that in fact vary widely across government jurisdictions local governments with smaller industrial bases have clearer financial incentives and constraints fewer nonfinancial interests in enterprises and a greater capacity to monitor them in china s vast public sector the fastest growth in output and productivity has occurred where government ownership rights are clearest and most easily enforced which enables officials to manage public industry as a diversified market oriented firm

corporate groups dual class shares and the value of voting rights abstract it is known that deviating from the one share one vote principle through the issue of non voting stock increases the value of outsiders voting rights we argue that the creation of a business group is another way to deviate from one share one vote and we show that it produces a larger voting share premium in holding companies as a consequence having both subsidiaries and non voting stock produces a multiplier effect on the voting premium the puzzling size of the premium in italy was never related to the interaction of pyramiding and non voting stock our empirical study confirms that the premium is larger for holding companies issuing non voting stock than for similar operating companies without non voting equity

the long run creditworthiness of developing countries theory and practice this paper analyzes the determinants of developing country long run creditworthiness focusing on the process of capital accumulation relative to external debt creditworthiness depends on the actual capital stock compared with a critical level representing the gross wealth just sufficient to ensure that interest payments to foreigners never exhaust national output given expected gross inflows and existing outstanding debt hence the probability of rescheduling is linked to debt service capital net inflows capital investment rates and income levels the empirical results based on a probit analysis of historical rescheduling incidents are quite robust and supportive of the theoretical framework

growth diversification and business group formation in entrepreneurial firms recent empirical research has demonstrated that the growth process of entrepreneurial firms is frequently achieved through the formation of business groups i e a set of companies run by the same entrepreneur or entrepreneurial team this has been hypothesised as result of a growth process by diversification of the original activity this entrepreneurial growth process offers an alternative explanation for the formation of business groups than that arising from managerial efficiency and expediency the main aim of the article is to explore group formation through entrepreneurial diversification using a sample of high growth entrepreneurial firms the analysis demonstrates that the running of a group of companies by the same entrepreneur is not only induced by the geographical extension of their operation and by diversification but also by the differentiation policy aimed at serving different market segments within the same sector this seems to contrast with the diversification policy and organisational setting of large managerial firms

do estate and gift taxes affect the timing of private transfers abstract proposals to alter the estate tax are contentious and have been considered largely in an empirical vacuum this paper examines time series and cross sectional variation to identify the effects of estate and gift taxation on the timing of private transfers the analysis is based on data from the 1989 1992 1995 1998 and 2001 surveys of consumer finances legislative activity during this period reduced the tax disadvantage of bequests relative to gifts moreover the magnitude of this reduction differed systematically across identifiable household categories we find that households experiencing larger declines in the expected tax disadvantages of bequests reduced inter vivos transfers relative to households experiencing small declines in the tax disadvantages of bequests this finding is consistent with the hypothesis that the timing of transfers is responsive to applicable gift and estate tax rates the results also provide evidence of a systematic bequest motive for high wealth households

changing performance of business groups over two decades technological capabilities and investment inefficiency in korean chaebols abstract this article differentiates itself from the large volume of existing literature on business groups such as korean chaebols in several aspects first it uses productive efficiency rather than financial efficiency as a performance measure second it defines chaebols in three alternative ways and checks whether the results are robust third and most important it explains the sources of the post crisis change in the performance of korean chaebols in terms of technological capabilities and investment inefficiency this study finds that chaebols have become more efficient than non chaebols in the post crisis period compared with the pre crisis period that inefficiency in investment has always been critical in determining productive inefficiency and that after the 1997 financial crisis korean chaebols have improved their performance by reducing investment inefficiencies and enhancing technological capabilities the results of this study are consistent with the often acknowledged advantages of bus

market culture and authority a comparative analysis of management and organization in the far east three frameworks purport to explain industrial arrangements and practices a market approach that emphasizes economic characteristics a cultural approach that sees organization as the expression of patterned values and an authority approach that explains organization as a historically developed structure of domination the efficacy of each approach is tested in explaining the organizational structures of three rapidly growing east asian economies japan south korea and taiwan the paper argues through comparative analysis that organizational growth is best explained by market and cultural factors but that authority patterns and legitimation strategies best explain organizational structure