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Business Group Affiliation, Firm Governance, and Firm Performance: Evidence from China and India


*Department of Business Policy, National University of Singapore, Singapore, 117592. Tel: 1-757-401-5963; E-mail:


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.