Emerging Market Business Groups, Foreign Investors, and Corporate Governance

35 Pages Posted: 9 Mar 1999 Last revised: 2 Jan 2023

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

Date Written: February 1999

Abstract

We examine the interaction between three kinds of concentrated owners commonly found in an emerging market: family-run business groups, domestic financial institutions, and foreign financial institutions. Using data from India in the early 1990s, we find evidence that domestic international investors are poor monitors, and that foreign institutional investors are good monitors. Whereas affiliates of those groups that attract foreign institutional investment are no more difficult to monitor than are unaffiliated firms, we find that group affiliation reduces the likelihood of foreign institutional investment. More transparent groups (where greater transparency is proxied for by a lower incidence of intra-group financial transactions) are more likely to attract such investment. We conclude that groups are difficult to monitor, and that foreign institutional investors serve a valuable monitoring function as emerging markets integrate with the global economy.

Suggested Citation

Khanna, Tarun and Palepu, Krishna, Emerging Market Business Groups, Foreign Investors, and Corporate Governance (February 1999). NBER Working Paper No. w6955, Available at SSRN: https://ssrn.com/abstract=153428

Tarun Khanna (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
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Krishna Palepu

Harvard University - Harvard Business School ( email )

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