S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Institute for Economies in Transition, Bank of Finland BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland

No 24/2008:
Performance of business groups: Evidence from post-crisis Russia

Andrei Shumilov ()

Abstract: Transition economies like Russia lack properly functioning financial markets and institutions, which results in severe agency and information problems. Business groups in such markets have the potential to offer benefits to member firms, but they also may destroy value. Using a unique database on membership in Russian business groups, we analyze the relationship between group affiliation and firm performance on the basis of a large panel of manufacturing firms for the period 1999-2002. We find that group membership has a positive effect on productive efficiency, but gains from improved productivity in group affiliates do not adequately translate into higher profitability. This is consistent with the expropriation hypothesis, according to which controlling owners of groups extract private benefits by siphoning profits from their members. Among the different group categories delineated by type of controlling owner, the extent of profit dissipation is especially large in groups controlled by private domestic owners, who face a greater risk of possible future expropriation of property. Finally, we examine two potential sources of benefits of membership in business groups: mutual insurance among affiliated firms and preferential treatment from the state via subsidies and tolerated tax arrears. We find that, during the period studied, groups neither provided mutual insurance nor did they receive larger support from the state than unaffiliated firms. Together with findings from the previous literature indicating that, prior to the 1998 financial crisis, group firms benefited from more efficient allocation of capital within groups than in the rest of the economy but not after the crisis, our results suggest that the advantages of group membership recede as the economic and institutional environment gradually improves.

Keywords: business groups; firm performance; transition economy; Russia; (follow links to similar papers)

JEL-Codes: G30; L20; (follow links to similar papers)

63 pages, November 25, 2008

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

dp2408.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Päivi Määttä ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:bofitp:2008_024 This page was generated on 2014-12-14 19:21:18