Business groups in emerging markets: financial control and sequential investment

Arbeitspapier

Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group's organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1763

Classification and Topics

• Classification: Wirtschaft ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Legal Procedure, the Legal System, and Illegal Behavior: Other ; Firm Organization and Market Structure
• Subject: Konzern ; Vertrag ; Rechtsdurchsetzung ; Moral Hazard ; Marktversagen ; Investition ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hainz, Christa
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/25808
• Last update: 10.03.2025, 11:41 AM CET