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Beyond institutional voids: Business groups, incomplete markets, and organizational form

Authors

  • K. S. Manikandan,

    Corresponding author
    1. Corporate Strategy and Policy Area, Indian Institute of Management Tiruchirappalli, Tiruchirappalli, India
    • Correspondence to: K. S. Manikandan, Indian Institute of Management Tiruchirappalli, Thanjavur Main Road, Thuvakudi, Tiruchirappalli 620 015, India. E-mail: mani@iimtrichy.ac.in

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  • J. Ramachandran

    1. Corporate Strategy and Policy Area, Indian Institute of Management Bangalore, Bangalore, India
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Abstract

We extend the “institutional voids” perspective on business groups by examining the value-adding potential of two of the characteristic features of business groups: their diverse portfolio and multi-entity organizational form. We maintain that portfolio diversity affords affiliates privileged access to opportunities hidden by incomplete strategic factor markets. We hypothesize that the multi-entity organizational form enables superior sensing and seizing of these growth opportunities by affiliate firms. We further suggest that, in the context of institutional reforms, these characteristics strengthen business group affiliates' ability to capitalize on the expanded set of opportunities made available by the reform program. Empirical analyses on a sample of Indian firms over the period 1994–2010 support our hypotheses. Implications for theory and future directions are discussed. Copyright © 2013 John Wiley & Sons, Ltd.

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