Financially Interlinked Business Groups

Financial interlinkage, in the form of cross-holding of equity and debt between firms, characterize business groups in many countries. We suggest that such financial interlinkage can be viewed as a way to solve credit rationing caused by asymmetric information. If firms possess better information about each other than a bank, then business groups can be a mechanism to induce firms to sort on the basis of this information. Banks can offer a menu of contracts that vary in the extent of financial interlinkage to induce firms to self-select on the basis of the equilibrium composition of the business groups they can form.business groups, cross-holding of debt and equity, financial interlinkage

Diversification, Propping and Monitoring - Business Groups, Firm Performance and the Indian Economic Transition

The industrial landscape of many emerging economies is characterized by diversified business groups. Given the well-known costs of diversification, their prevalence in emerging economies is a puzzle that has not been completely resolved. While there is evidence that business groups in emerging economies confer diversification benefits on group affiliated firms by substituting for missing institutions and markets, whether such benefits persist over the economic transition as institutions and markets develop is unclear. We investigate this issue in the context of the wide-ranging transformation of the Indian economy over the past decade. We find that business group affiliation continues to generate higher market valuation vis--vis standalone firms ten years into the transition, but diversification is not the source of these benefits. Instead, we find that propping through profit transfers among firms within a group and better monitoring through group level directorial interlocks explains the higher market valuation of business group affiliated firms. The effect of propping and directorial interlocks on firm value depends on the equity stakes of the controlling shareholders. Propping appears to be the source of group affiliation benefits in firms with below median cash flow rights of the controlling shareholders, while director interlocks are the primary source of the group effect for firms where the controlling shareholders have above median cash flow rights.business groups, diversification, propping, Monitoring, concentrated ownership

Business Groups, the Financial Market and Modernization

Business groups are an important aspect of the industrial organization of many developing countries. This paper develops a theory suggesting that they may be organizations that facilitate modernization in the presence of financial market constraints. An important function of the stock market is the diversification of risk that comes with specialized, productive technology. But in the face of serious information problems a well functioning stock market may fail to emerge, relegating the economy to a low productivity-poverty trap. Bilateral links between a firm and a group of others may be a more cost-effective way to achieve risk-sharing. Such business groups may be feasible when a full-fledged stock market is not. As modernization takes place, either because information problems become less severe or more firms enter the economy, business groups actually expand in size before being abruptly rendered obsolete by the stock market. This is consistent with empirical results from a number of emerging economies.http://deepblue.lib.umich.edu/bitstream/2027.42/39709/3/wp325.pd

Business Groups, the Financial Market and Modernization

Business groups are an important aspect of the industrial organization of many developing countries. This paper develops a theory suggesting that they may be organizations that facilitate modernization in the presence of financial market constraints. An important function of the stock market is the diversification of risk that comes with specialized, productive technology. But in the face of serious information problems a well functioning stock market may fail to emerge, relegating the economy to a low productivity-poverty trap. Bilateral links between a firm and a group of others may be a more cost-effective way to achieve risk-sharing. Such business groups may be feasible when a full-fledged stock market is not. As modernization takes place, either because information problems become less severe or more firms enter the economy, business groups actually expand in size before being abruptly rendered obsolete by the stock market. This is consistent with empirical results from a number of emerging economies.technology choice, diversification, business groups, stockmarket

Connected Lending: Thailand before the Financial Crisis

The allocation of credit by banks and financial institutions on 'soft' terms to friends and relatives rather than on the basis of 'hard' market criteria in the years leading up to the East Asian crisis of 1997-98 has been widely noted. Using a detailed dataset on Thai firms prior to the crisis period we examine whether business connections were in fact a good predictor of preferential access to long term bank credit. We find that firms with connections to banks and politicians had greater access to long-term debt than firms without such ties. Connected firms need much less collateral to obtain long term loans than those without connections. Such firms obtain more long term loans, and appear to use less short term loans. We do not find support for the existence of connections between banks and firms serving to reduce asymmetric information problems. Our results thus lend support to the hypothesis that the presence of connections was the most important factor determining access to long term bank debt prior to the financial crisis and are consistent with recent research implicating weak corporate governance in the extent and severity of the crisis.Agency Costs, Capital Structure, Corporate Governance, Crony Capital, Debt Maturity, East Asian Financial Crisis, Thailand

Crony Lending: Thailand before the Financial Crisis

The allocation of credit by banks on 'soft' terms to friends and relatives - often termed cronyism - rather than on the basis of 'hard' market criteria in the years leading up to the Asian financial crisis of 1997-98 has been hypothesized as an important cause of the crisis. These practices had their basis in the implicit guarantees provided by the government to banks, which in turn percolated down to firms having 'crony' ties to banks as soft-budget constraints for projects of uncertain quality. Such soft-budget constraints should be reflected in preferential access to long term bank credit for firms with close ties to banks. Using pre-crisis data on borrowing patterns in Thailand we find that firms with crony ties to banks and politicians had greater access to long-term debt than firms without such ties. Surprisingly, we find that a broad range of standard firm characteristics suggested as important factors by the literature on firm finance play a much less significant role in explaining the allocation of long term bank credit. Consequently, it is difficult to avoid the interpretation that 'cronyism' was by far the main driver of pre-crisis lending patterns.

Survey of the Labor Market for New Ph.D. Hires in Economics 2019-2020

This year, the survey questionnaire was sent to 380 organizations. Questionnaires were returned by 136 organizations (35.8 percent). Of this year’s responses, 83 (61.0 percent) were from those who responded to the last survey conducted for the 2018-19 academic year. Among the academic institutions responding, the distribution of highest degrees offered was as follows: Ph.D.—52.2 percent; Master—12.5 percent and Bachelor—33.8 percent. The responses are reported for all respondents, and separately for Ph.D. degree granting institutions and for schools whose highest degree offered is the Bachelor or Master degree. Data for the top 30 institutions in the revised National Research Council’s Research Doctorate Report, 2011, are reported as a subset of Ph.D. degree granting schools. They are referred to as the Top 30

Survey of the Labor Market for New Ph.D. Hires in Economics 2022-23

This year, the survey questionnaire was sent to 369 organizations. Questionnaires were returned by 144 organizations (39.0 percent). Of this year’s responses, 86 (59.7 percent) were from those who responded to the last survey conducted for the 2021-22 academic year. Among the academic institutions responding, the distribution of highest degrees offered was as follows: Ph.D.—56.3 percent; Master’s—8.3 percent and Bachelor’s—34.7 percent. The responses are reported for all respondents, and separately for Ph.D. Degree granting institutions and for schools whose highest degree offered is the Bachelor’s or Master’s Degree. Data for the top 30 institutions in the revised National Research Council’s Research Doctorate Report, 2011, are reported as a subset of Ph.D. Degree granting schools. They are referred to as the Top 30

Survey of the Labor Market for New Ph.D. Hires in Economics 2021-2022

This year, the survey questionnaire was sent to 368 organizations. Questionnaires were returned by 144 organizations (39.1 percent). Of this year’s responses, 53 (36.8 percent) were from those who responded to the last survey conducted for the 2020-21 academic year. Among the academic institutions responding, the distribution of highest degrees offered was as follows: Ph.D.—51.4 percent; Master’s—11.8 percent and Bachelor’s—35.4 percent. The responses are reported for all respondents, and separately for Ph.D. Degree granting institutions and for schools whose highest degree offered is the Bachelor’s or Master’s Degree. Data for the top 30 institutions in the revised National Research Council’s Research Doctorate Report, 2011, are reported as a subset of Ph.D. Degree granting schools. They are referred to as the Top 30

Survey of the Labor Market for New Ph.D. Hires in Economics 2020-2021

This year, the survey questionnaire was sent to 367 organizations. Questionnaires were returned by 141 organizations (38.4 percent). Of this year’s responses, 66 (46.8 percent) were from those who responded to the last survey conducted for the 2019-20 academic year. Among the academic institutions responding, the distribution of highest degrees offered was as follows: Ph.D.—50.4 percent; Master’s—9.9 percent and Bachelor’s—38.3 percent. The responses are reported for all respondents, and separately for Ph.D. Degree granting institutions and for schools whose highest degree offered is the Bachelor’s or Master’s Degree. Data for the top 30 institutions in the revised National Research Council’s Research Doctorate Report, 2011, are reported as a subset of Ph.D. Degree grantingschools. They are referred to as the Top 30