Showing papers on "Corporate group published in 2014"

Innovation and Family Ownership: Empirical Evidence from India

Abstract: Manuscript Type Empirical Research Question/Issue This study examines the direct effect of family ownership on innovation in emerging markets by using data from Indian family-controlled publicly listed firms as its sample. In particular, we study (1) the direct effects of family ownership on innovation and (2) the influences of business group affiliation on these family firms. Research Findings/Insights Using an unbalanced panel of 395 Bombay Stock Exchange ( BSE) listed Indian firms during the years 2001 and 2008, we found that the impact of family ownership on innovation productivity is positive (after controlling for possible endogeneity). We further emphasized the business group affiliation of family firms and distinguished between the innovation activities of group-affiliated and stand-alone family firms. We found that affiliating with top 50 business groups increases the innovation activities of these family firms. Theoretical/Academic Implications Theoretically, we complement agency theory by incorporating both the institutional perspective and the external resourcing perspective to provide a more robust framework for examining the impact of family ownership on innovation in emerging markets. Methodologically, we adopted a more rigorous econometrics method by providing a panel analysis that used a system GMM estimator and addressed the endogeneity issue thoroughly, which represented a significant improvement over the shortcomings of the methodologies found in the existing literature. Practitioner/Policy Implications Our findings suggest that the Indian government should provide support for affiliating family firms with business groups while improving policies on information disclosures; it should also establish a proper corporate governance mechanism for private and public family business. The findings further suggest that a corporate governance code should encourage family firms to have an independent professional CEO.

Strategic responses to fdi in emerging markets: : Are core members more responsive than peripheral members of business groups?

Abstract: With increasing foreign direct investment (FDI) into emerging markets, local firms must make critical strategic decisions in order to remain competitive. When faced with multinational enterprises (MNEs) announcing FDI into their industry, local firms can expand operations and challenge the MNE head on, or refrain from responding directly, effectively ceding market share to the MNE investor. We propose that local firms’ responses are shaped by their affiliation with, and position in, a business group. Using data on investment announcements by MNEs and local firms in India from 1995 to 2010, we find that firms that are affiliated with business groups tend to be more sensitive to MNE investment announcements than are stand-alone firms. More professionally managed group affiliate firms are more likely to respond to MNE threats. Furthermore, firms that are in the group’s identity domain—that is, those holding more prominent positions within their group (especially as measured by centrality in the group’s direc...

Determinants of early movers in cross-border merger and acquisition wave in an emerging market: A study of Indian firms

Abstract: A series of changes in India’s financial institutional regime led to waves of cross-border mergers and acquisitions (M&A) deals spanning various industries In this article, we explore firm-level determinants that distinguish between early movers and followers in these waves We tested our hypotheses using data for the 2001–2011 period Analysis found support for our hypotheses that prior experience (with alliances), firm size, and international embeddedness of business group influence timing of firms’ cross-border M&A Findings support the springboarding perspective that emerging market (EM) firms engage in preemptive acquisitions to gain first-mover advantage

Internal Capital Market and Dividend Policies: Evidence From Business Groups

Abstract: We argue that internal capital market imperatives of business groups i.e., reallocation of capital across group firms, influences an affiliated firm's dividend policy. Intuition is developed in a model in which business group insiders distribute dividends from cash-rich firms and use their share of payout to invest in other affiliated firms. Employing multi-country panel-data, we find support for this channel: Dividends by a group firm are positively related with equity-financed investments by its affiliated firms. Results are corroborated by exploiting variation in a firm's investment opportunity generated by changes in import tariff policy: a shock to investment opportunity of an affiliated firm is propagated to dividend policies of other firms in its group.

Firms, Markets, and the State: Institutional Change and Manufacturing Sector Profitability Variances in India

Abstract: 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.

Convergence of Corporate Social Responsibility and Corporate Governance in Weak Economies: The case of Bangladesh.

Abstract: The convergence of corporate social responsibility (CSR) and corporate governance (CG) has changed the corporate accountability mechanism. This has developed a socially responsible ‘corporate self-regulation’, a synthesis of governance and responsibility in the companies of strong economies. However, unlike in the strong economies, this convergence has not been visible in the companies of weak economies, where the civil society groups are unorganised, regulatory agencies are either ineffective or corrupt and the media and non-governmental organisations do not mirror the corporate conscience. Using the case of Bangladesh, this article investigates the convergence between CSR and CG in the self-regulation of companies in a less vigilant environment.

Social Network Analysis of Early Classic Hohokam Corporate Group Inequality

Abstract: Network analysis provides a unique approach for archaeologists to identify structural relationships between the emergent properties of social interactions and the trajectory of corporate groups. This article presents the results of a survey of architectural features and a network analysis of walkways between house clusters at the thirteenth-century Hohokam site of Cerro Prieto, located in the Tucson Basin, Arizona. Statistical measures suggest that nascent inequality was developing at this site, making it an excellent case study of the factors that led to the emergence of economic and social differentiation. Network analysis provides a means to explain how corporate groups were able to leverage social connections in their struggle for ascendance in these spheres of interaction. Regardless of the strategy of social ascendance, a simple increase in the opportunity to influence others appears to explain a large portion of differential corporate group success.

How do business groups’ small world networks effect diversification, innovation, and internationalization?

Abstract: Small world networks which demonstrate better group cohesiveness have attracted much theoretical attention in enhancing performance and creativity in strategic management. Yet, empirical studies of the benefits that can accrue to business groups’ strategic or economic outcomes remain scarce in the business group literature. Conceptualizing the business group as an embedded group network, we investigate the previously untested role of a small world group structure on relationships with group (industrial) diversification, core firm innovation and its internationalization. We find all these have positive and significant impacts. Group diversification is also found to mediate the relationship between a small world group structure and a group’s degree of internationalization. However, a small world group structure does not directly relate to a group’s degree of internationalization. Drawing on embeddedness and social network perspectives, we find general support for the hypotheses that a small world group structure facilitates strategic and economic outcomes for groups and core firms by virtue of efficiencies in resources exchange in a way that extends the literature on business groups.

Business Groups and Transnational Capitalism in Central America: Economic and Political Strategies

Abstract: 1. Introduction: the Emergence and Evolution of Business Groups in Central America 2. Between Hierarchies and Networks: Understanding Business Group Strategies in a Global Capitalism 3. Regional Shifts and National Trajectories: Differences in the Context and Strategies of Business Groups 4. From Oligarchs to Transnational Business Group Leaders? The Shifting Strategies of Key Business Groups 5. Internationalization and the Export Performance of the Central American Business Groups 6. Central American Business Groups, Innovation and Institutional Conditions 7. The Role of the State: Governmental Financial Policies and Business Group Strategies 8. Between the Back and the Front Stage - the Political Strategies of Central American Business Groups 9. Conclusion References

The Effect of Business Group Governance on Market Value and Profitability: Time-Series Evidence from Turkey

Abstract: Business groups play a large, sometimes dominant economic role in many countries. A number of studies find an association between firm-level corporate governance and market value, but none study the role of business group identity in firm level corporate governance or the value of “group governance.” We begin to fill that gap through a case study of Turkey. We study the corporate governance practices of Turkish business groups and listed firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index (TCGI), composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. This index predicts higher market value (proxied by Tobin’s q) at both the firm level (with firm fixed effects) and group level (with group fixed effects); the principal driver of this result is disclosure subindex. We find large differences in the governance choices of different business groups. Some groups invest in governance; others do not; and investors reward those that do with higher market values for group firms.

Governing Local Sustainability: Agency Venues and Business Group Access

Abstract: To what extent do local administrators include business interests in their informal bargaining and negotiation on issues involving economic development and environmental and sustainability policies...

Centripetal Authority, Differentiated Networks: The Social Organization of Chinese Firms in Singapore

Abstract: This chapter examines Chinese family firms’ internal dynamics; organizational structure, particularly ownership patterns; authority structures; division of labour; and the principles of inheritance. Using case studies of large-scale Chinese firms such as the Hong Leong Group of Companies, it argues that Chinese businesses retain a highly centralized authority structure despite firm size. The paper also explores the definition of a family firm and suggests that a combination of effective control and ownership and the interplay of the two are a defining feature. The paper also deals with the problematic overlap between the family as a household unit and the firm as a business enterprise. Thus, a firm is governed both by formal structures as a business and the informal structures under a household patriarch. Finally, the paper details the “centripetal tendencies” of Chinese family firms, with strong desires to retain control and ownership even as a family business grows and diversifies.

Related party transactions and separation between control and direction in business groups: the Italian case

Abstract: Purpose – Under IAS 24 a related party transaction (RPT) is a “transfer of resources, services or obligations between related parties, regardless of whether a price is charged” (IASB). The purpose of this paper is to consider the interest of the business group and the directing activity of the parent company for the interpretation of the RPT. Considering the interest of the group means to interpret the intra-group transactions not as isolated transactions, as usually done by the empirical studies, but in a wider perspective, that of the group. Design/methodology/approach – This paper builds on explanatory multiple case studies in order to answer the following research questions: why the interest of the business group and the directing activity of the subsidiaries by the parent company are important in the interpretation of RPTs. How RPTs can be interpreted in the light of the directing activity of the holding company. Findings – Dominant shareholder tends to demonstrate that the group it is not managed as...

Internal corporate governance mechanisms as drivers of firm value: panel data evidence for Chilean firms

Abstract: The paper analyses to what extent ownership structure, capital structure, and dividend policy as corporate governance mechanisms drive the firm value. From a data panel of publicly quoted Chilean firms for the years 2002–2010, we find that there is an inverse U-shaped relationship between ownership concentration and firm value. The positive slope is supported by the supervision hypothesis; whilst the negative relation between ownership concentration and firm value is supported by the expropriation hypothesis. We also find that there is a positive impact of both leverage and the dividend pay-out on the firm value. In this case, these two mechanisms reduce the free cash flows which otherwise might be used opportunistically by managers in their own interests (free rider problem). Contrary to the previous empirical literature in Chile, it is found that the mere fact that a firm is affiliated to a business group/conglomerate impacts positively its value. This positive effect is basically driven by the development of intragroup capital markets, and the governance imposed by the rules of the conglomerate.

Business group characteristics and firm operating performance: evidence from Chile

Abstract: Purpose The purpose of this paper is to examine the impact of business group characteristics on firm‐operating performance in Chile. Design/methodology/approach Using a multiple regression model, this study examines the effect of business group characteristics (interlocking of directors, management concentration, and business group specialization) on operating performance (ROA growth) in a sample of 104 publicly traded Chilean firms. Findings It is documented that, except for interlocking of directors, the two other business group characteristics (management concentration and business group specialization) are significantly related to the operating performance of firms belonging to Chilean business groups. These findings suggest that Chilean business groups would improve or deteriorate the performance of their affiliated firms modifying its characteristics. Originality/value Too little is known about the effect of business group characteristics on firm‐operating performance in Latin American countries suc...

Balancing corporate and social interests: Corporate governance theory and practice

Abstract: The claim is often made that corporate governance is an attempt to balance corporate interests with individual and societal interests. Lord Adrian Cadbury, who chaired the Cadbury Commission that produced the Cadbury Report on Corporate Governance in the UK, claims that the objective of corporate governance “is to align as nearly as possible the interests of individuals, corporations and society”. This paper will test whether this claim can be substantiated on the theoretical and practice level. To test this claim on the theoretical level the concept of corporate governance will be analysed in order to determine whether the said balance is implied by the concept of corporate governance. In order to determine whether the claim find support in corporate governance practices around the world, six continental or regional reports on the relationship between business ethics and corporate governance, representative of the various regions of the world (Africa, Asia-Pacific region, Europe, Japan, Latin America and North America), will be analysed critically. On the basis of this conceptual and corporate governance practice analysis an assessment will be made of whether corporate governance is about “align[ing] as nearly as possible the interests of individuals, corporations and society”.Â

iTax - Apple's International Tax Structure and the Double Non-Taxation Issue

Abstract: Apple, famous for its innovative products, has proved to be equally creative in its tax structure. From 2009 to 2012, it successfully sheltered US $44 billion from taxation anywhere in the world. An unusual feature of its tax structure is the relative simplicity: it does not rely on the Double Irish Dutch Sandwich structure that has been commonly used by other US multinationals. A recent parliamentary hearing in the US revealed detailed information about Apple’s tax structure, which is difficult, if not impossible, to discern from its financial statements. At the same time, interesting information and issues of tax avoidance by multinational enterprises from the perspective of source countries were also revealed in parliamentary committee hearings in the UK. The aim of this article is twofold. First, it analyses the international tax structure of Apple and investigates how it achieved the double non-taxation of US $44 billion. The analysis reveals that the US Government has knowingly facilitated the avoidance of foreign income tax by its multinational enterprises (MNEs), thus creating double non-taxation. It also highlights the structural issues of domestic and international tax rules that enable the creation of double non-taxed income. Secondly, the article reviews the possible responses of both the residence and source countries to Apple’s tax avoidance structure, and argues that two issues are important in the design of effective solutions to the problem. First, the application of the enterprise doctrine—under which a corporate group under the common control of a parent company is treated as one single entity—is more likely to produce effective measures to tackle MNEs’ tax avoidance transactions. Secondly, the increase in transparency, in particular a properly designed country-by-country reporting regime, would be a much needed weapon for tax authorities which at present suffer from information asymmetry in the tax avoidance battle with MNEs.

Six Components of Corporate Governance That Cannot Be Ignored

Abstract: Recent regulatory initiatives that attempt to encourage shareholder engagement, ensure board independence and improve the operation and transparency of corporate groups are of great interest to both academics and practitioners. These initiatives reflect a ‘one-size-fits-all’ approach that may lead to disappointing and counterproductive results and could destabilize and disrupt workable arrangements between management, the board of directors and investors. In this paper, we take a different perspective by showing how there is more to corporate governance than just providing protection to investors and other stakeholders. An important reason for corporate governance is that it also facilitates companies to be innovative, create value and maintain a competitive advantage. To show this, this paper focuses on six components that successful and innovative companies have in common. We support our argument with case studies to show how these companies have found different ways to give substance to the six components.

The Mandatory Law Puzzle: Redefining American Exceptionalism in Corporate Law

Abstract: American corporate law stands out when compared to other legal systems. At no time is this more apparent than with regard to the use of mandatory law. Corporate law in the United States is largely enabling, whereas most other countries around the globe rely heavily on mandatory corporate law.The traditional view seeks to explain this American exceptionalism by pointing to the phenomenon of regulatory competition. According to this view, regulatory competition has eroded mandatory corporate law norms in the United States, whereas the absence of such competition has allowed mandatory norms to persist in other countries. This narrative, however, confuses cause and effect. Regulatory competition exists where it is allowed to exist; the decisive question is why so many countries have chosen to protect their mandatory corporate law norms by suppressing regulatory competition while the United States has done the opposite.This article argues that efficiency considerations are key to understanding this mandatory law puzzle. The efficiency of enabling versus mandatory corporate law is not uniform across countries; instead, it depends on numerous social and institutional factors, particularly the efficiency of stock markets, ownership patterns, judicial infrastructure, and labor market flexibility. As a result, enabling corporate law is substantially more efficient in the United States than it is in Europe and many other countries. In other words, the U.S. commitment to private ordering in corporate law may not be a simple political choice that other countries can copy at will, but rather the reflection of various deep-seated institutional and social characteristics.

Just Say No: Corporate Taxation and Corporate Social Responsibility

Abstract: This article will address the question whether publicly traded US corporations owe a duty to their shareholders to minimize their corporate tax burden in any way that they may be able to get away with from a purely legal perspective. First, however, to render the subsequent discussion a bit more concrete, I will describe a recently unveiled case study of corporate tax aggressiveness.

The relations between governance and the internationalisation of SMEs: evidence from medium-sized Austrian firms

Abstract: Corporate governance plays a crucial role in shaping a firm’s strategy, including its international activity. However, the relations between governance and internationalisation have received limited scientific attention. Focusing on governance variables related to ownership, management and boards, this paper explores how the ownership-related factors ‘group affiliation’ and ‘family influence’ as well as the firm’s governance bodies (management board, supervisory and advisory boards) impact internationalisation. Basing research efforts on medium-sized Austrian firms and drawing on bivariate and multivariate analyses, this paper investigates these relations in a country with a two-tier system. The findings suggest that companies belonging to a business group are more likely to operate internationally. Moreover, there seems to exist an inverted U-shaped relationship between family influence and internationalisation. Also, the firms analysed in this study do not make use of the pool of resources, offered by managing directors, to facilitate internationalisation. While our study reveals a negative correlation between international activity and supervisory boards, firms with an advisory board are more likely to engage in international activities. This finding indicates that business groups and advisory boards are best suited to provide medium-sized enterprises with the capabilities, know-how, networks and other resources necessary to operate internationally.