THE FUTURE OF BUSINESS GROUPS IN EMERGING MARKETS: LONG-RUN EVIDENCE FROM CHILE Viviane Yamasaki

Author (s) Tarun Khanna is the Jorge Paulo Lemann Professor at the Harvard Business School, where he has sought for two decades to study the drivers of entrepreneurship in emerging markets as a means of economic and social development. Joined the faculty of the Harvard Business School in 1983. He is the Ross Graham Walker Professor of Business Administration, and Senior Advisor to the President of Harvard University. 

Published by: Academy of Management Source: The Academy of Management Journal, Vol. 43, No. 3 (Jun., 2000), pp. 268-285 URL: http://www.jstor.org/stable/1556395

Agenda METHODOLOGY WHY CHILE? THEORY and HYPOTHESES RESULTS CONCLUSION

Focus Demonstrate variation in the extent to which firms benefited from their affiliation with Chilean business groups in the 1988-96 period. The conjecture that the evolution of institutional context alters the value-creating potential of business groups, albeit slowly. The article is an attempt to overcome two important concerns in the literature. Most existing studies have eschewed a multidisciplinary approach x most prior studies have analyzed the effects of business group affiliation at one point in time. One conceptual contribution of this study is derivation and empirical examination of different kinds of performance effects associated with business group affiliation

1. Methodology PURPOSE The central theoretical issue of interest concerns the effects of the institutional context on the relative values of different organizational forms . Conceptual contribution is to distinguish between the diversification-related and the non-diversification-related effects of group affiliation. Conceptual contribution is an examination of theoretical predictions, from a variety of disciplines, about the rate of change in the value creation potential of business groups as the ambient institutional context changes. These results speak to the future of business groups as emerging markets evolve.

1. Methodology Sample and datas Sample has 34 group affiliates, firms that are members of ten groups, and 80 unaffiliated firms, for a total of 114 firms each with nine years of data. The authors employed cross-sectional and panel estimation techniques to analyze a unique and newly assembled data set, parts of which were obtained and cross-checked through extensive fieldwork in Santiago, Chile, between 1996 and 1998. Examples… -Accounting data (balance sheet and income statement data) for all publicly traded companies were obtained from the Superintendencia de Valores y Seguros (SVS) in Santiago, Chile. - Stock market data, used only in our robustness checks, were obtained from Datastream International.

2. Why Chile? Chile offered an ideal setting for our analysis, for the simple reason that it has experienced extensive and early changes in its institutional context (especially in the extent of development of its markets). This variation allowed us to study changes in value creation by business groups between the late 1980s and the mid 1990s. Chile has steadily opened up to global competition, deregulated domestic markets, and reduced the role of the state The first stage of Chile's policy changes began with Pinochet's takeover from Allende's socialist regime in 1973 and was characterized by rapid and drastic reform. Massive privatization of state-owned firms was coupled with removal of entry barriers in product markets for domestic and foreign firms and by the imposition of severe restrictions on labor unions.

3. THEORY and HYPOTHESES 1. Theoretical Antecedents 2. Institutional Voids Framework: Hypotheses on Value Creation by Business Groups Hypothesis 1. The net performance effects of affiliation with a diversified business group will be curvilinear. Firm performance will decline with increases in unrelated group diversification until group diversification reaches a threshold. Beyond this threshold, marginal increases in group diversification will yield marginal increases in firm performance. Hypothesis 2. After group diversification is controlled for, group affiliation will be associated with positive firm performance effects

3. THEORY and HYPOTHESES 3. Changes in the Institutional Context in Chile 4. Hypotheses on Changes in Value-Creating Intermediation by Business Groups Hypothesis 3. The threshold above which marginal increases in unrelated group diversification result in marginal increases in firm performance will rise as market institutions evolve over time. Hypothesis 4. After group diversification is controlled for, the performance effects of group membership will decrease as market institutions evolve over time.

4. Results Hypothesis 1 - supported Hypothesis 2 - supported

5. CONCLUSION we note that our results provide a data point in the quest to understand the rate at which group effects might atrophy. We interpret our results as suggesting that there is only weak evidence of rapid change in the performance effects of group affiliation. As context changes, the benefits of group affiliation change. There is mild evidence that benefits from unrelated group diversification become progressively harder to attain as time passes. There is stronger evidence of the decline in the extent of non-diversification-related group benefits Data limitations prevent us from fully identifying which of several possible changes in the Chilean context were most responsible for the changes in the performance effects of group affiliation . In future work, they might seek to exploit both variations in the extent to which different industries are affected by different kinds of institutional changes, and the fact that group membership varies over time.

Thank you !