Abstract
Manuscript Type: Empirical. Research Question/Issue: It is fairly
well established that business group affiliation can compensate for
relatively weak institutions in emerging markets, and in Japan. However,
business groups are also common in the EU, and there have not yet
been any studies of business group affiliation and firm performance
in the EU. Consequently, we investigate how business group affiliation
affects firm performance in Belgium. Research Findings/Insights:
We find that operating profitability of group companies is significantly
lower than that of stand-alone companies, while group companies have
more volatile profits than stand-alone companies. Operating profitability
of group companies does not depend on the extent of group diversification.
Internal capital markets transfer funds from good performers to poorly
performing group companies. The impact of group affiliation on profitability
does not depend on group age or group ownership. Theoretical Implications:
Our study is, to the best of our knowledge, the first to investigate
how affiliation with a business group affects company performance
in a developed country other than Japan. The results raise the question
why business groups endure in so many developed countries with good
investor protection and well-developed capital markets. Some explanations
proposed in the literature are not confirmed. Practical Implications:
Our study offers insights to policy makers and practitioners on the
value and the role of business groups in developed countries. The
results raise doubts about the value of these groups in such countries
and suggest that policy makers may want to consider dismantling business
groups in EU countries. © 2008 The Authors.
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