Business Group Affiliation and Firm Performance—Evidence from Pakistani Listed Firms

Waseemullah ., Arshad Hasan


This study analyses the financial performance of business
group affiliated firms relative to stand-alone firms in Pakistan. The
investigations are done across the sample period of 1993-2012. The study
employs ‘Chop shop’ methodology to construct the excess values
(performance measure); in order to compare the results with earlier well
documented studies of both developed and emerging countries. Both
univariate and regression analyses clearly demonstrate that group
affiliated firms are trading at discount (underperform relative to
stand-alone firms) during the sample period. Despite the historical
success in the past, the findings suggest that business groups evolve
differently in the post financial reforms and privatisation programs
era. The findings are consistent with the market failure argument and
agency theory. However, the study finds a little evidence of efficient
internal markets of Pakistani business groups. Keywords: Business
Groups, Group Affiliation, Excess Value, Market Failure Theory, Agency
Theory, Chop Shop Methodology

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