Policy Shocks, Market Intermediaries, and Corporate Strategy: The Evolution of Business Groups in Chile and India

Posted: 8 Feb 1999

See all articles by Tarun Khanna

Tarun Khanna

Harvard University - Strategy Unit

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

Abstract

Numerous countries have undergone rapid transitions in their economic environments. Yet, little is known about firm responses to such transitions. We use field-collected data to study the evolution of eighteen large and diversified business groups in Chile (1987-1997) and India (1990-1997). The chosen time periods correspond to significant deregulation in the primary markets in both countries. Conventional wisdom suggests that the intermediation roles played by business groups ought to decrease during these time periods. However, we find an increase in group scope, an increase in the strength of the social and economic ties that bind together group firms, an increase in self-reported intermediation attempts by the groups, and some evidence that these actions are associated with improvements in accounting and stock market performance of the group affiliates. We suggest that the slow development of market intermediaries, in a manner suggested by institutional economics, and the attendant lack of reduction in transaction costs in primary markets, can explain these findings.

JEL Classification: L2

Suggested Citation

Khanna, Tarun and Palepu, Krishna, Policy Shocks, Market Intermediaries, and Corporate Strategy: The Evolution of Business Groups in Chile and India. Journal of Economics and Management Strategy, Vol. 8, No. 2, May 1999, Available at SSRN: https://ssrn.com/abstract=148768

Tarun Khanna (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Boston, MA 02163
United States
617-495-6038 (Phone)
617-495-0355 (Fax)

Krishna Palepu

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6759 (Phone)
617-496-7363 (Fax)

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=6527

Harvard University - David Rockefeller Center for Latin American Research ( email )

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United States

HOME PAGE: http://www.drclas.harvard.edu/faculty/directory/professors/view/150

Harvard Business Review ( email )

Boston, MA
United States

HOME PAGE: http://hbr.org/authors/palepu

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/krishna_palepu

International Academy of Management ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://theiam.ws/?person=palepu-krishna

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