Business Groups and Profit Redistribution: A Boon or Bane for Firms

R. George, M.R. Kabir, S.W. Douma

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Abstract

This study investigates how profit redistribution affects the performance of firms affiliated to business groups.It shows that inefficient profit redistribution causes group-affiliated firms to perform poorly relative to independent firms.This underperformance persists even after controlling for other explanations such as diversification and resource transfers to unlisted firms.The study also shows that profit redistribution is more pronounced for groups of larger size and greater corporate control.The results of the study lend support for the inefficient profit redistribution explanation of the 'business group discount'.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages42
Volume2004-124
Publication statusPublished - 2004

Publication series

NameCentER Discussion Paper
Volume2004-124

Keywords

  • Business groups
  • corporate governance
  • firm performance

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