Abstract
Manuscript Type: Empirical Research Question/Issue: This study seeks
to understand how business group affiliation, within firm governance
and external governance environment affect firm performance in emerging
economies. We examine two aspects of within firm governance - ownership
concentration and board independence. Research Findings/Insights:
Using archival data on the top 500 Indian and Chinese firms from
multiple data sources for 2007, we found that group affiliated firms
performed worse than unaffiliated firms, and the negative relationship
was stronger in the case of Indian firms than for Chinese firms.
We also found that ownership concentration had a positive effect
on firm performance, while board independence had a negative effect
on firm performance. Further, we found that group affiliation - firm
performance relationship in a given country context was moderated
by ownership concentration. Theoretical/Academic Implications: This
study utilizes an integration of agency theory with an institutional
perspective, providing a more comprehensive framework to analyze
the CG problems, particularly in the emerging economy firms. Empirically,
our findings support, as well as contradict, some of the conventional
wisdom, and suggest useful avenues for future research. Practitioner/Policy
Implications: This study shows that reforms in general and CG reforms
in particular are effective in emerging economies, which is an encouraging
sign for policy makers. However, our research also suggests that
it may be time for India and China to stop the encouragement for
the empire building through group formation in the corporate world.
For practioners, our findings suggest that firms need to balance
the need for oversight with the need for advice, while selecting
independent directors.
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