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In Business Groups We Trust

Author

Listed:
  • Anaïs HAMELIN

    (LaRGE Research Center, Université de Strasbourg)

  • Vivien LEFEBVRE

    (LaRGE Research Center, Université de Strasbourg)

  • Laurent WEILL

    (LaRGE Research Center, Université de Strasbourg)

Abstract

We investigate the impact of trust on the prevalence of business groups. Using firm-level information on group affiliation, we perform estimations on a large sample of 258,984 companies from twenty-five European countries. We find that higher trust is associated with a lower probability to be affiliated to a business group. Our findings accord with the hypothesis that higher trust diminishes the incentives for a firm to internalize transactions through the emergence of a business group. We also find limited evidence that the negative effect of trust on group affiliation is stronger for firms with higher information asymmetries. We furthermore conclude that trust is a substitute for the quality of formal institutions. Our work contributes to a better understanding of the reasons why business groups exist. It completes the institutional voids perspective by showing that informal institutions must be taken into account to understand the prevalence of business groups.

Suggested Citation

  • Anaïs HAMELIN & Vivien LEFEBVRE & Laurent WEILL, 2020. "In Business Groups We Trust," Working Papers of LaRGE Research Center 2020-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2020-06
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    References listed on IDEAS

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    More about this item

    Keywords

    business groups; trust.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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