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The Consequences of Business Group Affiliation: A Review of the Literature

Author

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  • R. Locorotondo
  • N. Dewaelheyns
  • C. Van Hulle

Abstract

In contrast to the popular assumption of independence made in the classic corporate finance literature, many companies around the world are linked through common ownership to form business groups. This paper reviews the growing literature on the consequences of business group membership. The presence of internal capital markets within the group may lead to an increased availability of financial resources and more optimal investment allocation due to reduced asymmetric information. Moreover, intragroup guarantees and a group reputation effect may also improve the access to external financing, and group members can engage in risk sharing and risk reducing activities. The existence of business groups may, however, also have negative effects, including expropriation of wealth from minority shareholders, support of inefficient affiliates, political rent-seeking and excessive use of market power. The trade-off between these costs and benefits leads to mixed empirical evidence on the impact of group affiliation on profitability and innovation.

Suggested Citation

  • R. Locorotondo & N. Dewaelheyns & C. Van Hulle, 2012. "The Consequences of Business Group Affiliation: A Review of the Literature," Review of Business and Economic Literature, Intersentia, vol. 57(1), pages 77-98, March.
    • Handle: RePEc:sen:rebelj:v:57:y:2012:i:1:p:77-98
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    Cited by:

    1. Luis Alfonso Dau & Randall Morck & Bernard Yin Yeung, 2021. "Business groups and the study of international business: A Coasean synthesis and extension," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 161-211, March.
    2. Simone Santamaria, 2022. "Portfolio Entrepreneurs’ Behavior and Performance: A Resource Redeployment Perspective," Management Science, INFORMS, vol. 68(1), pages 333-354, January.
    3. Aguilera, Ruth V. & Crespí-Cladera, Rafel & Infantes, Paula M. & Pascual-Fuster, Bartolomé, 2020. "Business groups and internationalization: Effective identification and future agenda," Journal of World Business, Elsevier, vol. 55(4).
    4. Pablo Doucet & Ignacio Requejo & Isabel Suárez-González, 2024. "Business groups’ internal labour markets and SME labour productivity," Small Business Economics, Springer, vol. 62(2), pages 707-725, February.

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