Arbeitspapier

Business groups in emerging markets: financial control and sequential investment

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.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 1763

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

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

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Hainz, Christa
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2006

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