Should Business Groups be in Finance? Evidence from Indian Mutual Funds

55 Pages Posted: 2 Jan 2014 Last revised: 27 Mar 2019

See all articles by Santosh Anagol

Santosh Anagol

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department

Ankur Pareek

Bucknell University, Freeman College of Management

Date Written: March 1, 2019

Abstract

A primary risk associated with business groups entering the financial sector is that groups will misallocate capital to own group firms, hurting investors and economic development. We study this issue in the context of business group owned mutual funds in India, where business groups have been present for over twenty years, and we can observe capital allocation decisions monthly. Business-group owned funds do not over-weight member firms, nor do they prop up member firm stocks or earn excess returns on their member firm investments. Business-group funds have an advantage when they focus on industries where the group operates, although we cannot distinguish whether this is due to insider trading versus (legal) specialization. Current regulations appear sufficient to prevent capital misallocation in member firms, but monitoring of investments in related sectors seems warranted.

Keywords: Business Groups, Emerging Markets

JEL Classification: D23, G30

Suggested Citation

Anagol, Santosh and Pareek, Ankur, Should Business Groups be in Finance? Evidence from Indian Mutual Funds (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=2373686 or http://dx.doi.org/10.2139/ssrn.2373686

Santosh Anagol (Contact Author)

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

Ankur Pareek

Bucknell University, Freeman College of Management ( email )

701 Moore Ave.
Lewisburg, PA 17837
United States

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