Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry

This study explores the importance of cross-border social networks for entrepreneurs in developing countries by examining ties between the Indian expatriate community and local entrepreneurs in India's software industry. We find that local entrepreneurs who have previously lived outside India rely significantly more on diaspora networks for business leads and financing. This is especially true for entrepreneurs who are based outside software hubs - where getting leads to new businesses and accessing finance is more difficult. Our results provide micro-evidence consistent with a view that cross-border social networks play an important role in helping entrepreneurs to circumvent the barriers arising from imperfect domestic institutions in developing countries.Diasporas, Informal Networks, Institutions, Entrepreneurship.

Business Groups in Emerging Markets: Paragons or Parasites?

Diversified business (or corporate) groups, consisting of legally independent firms operating in multiple markets, are ubiquitous in emerging markets and even in some developed economies. The study of groups, a hybrid organizational form between firm and market, is of relevance to industrial organization, corporate finance, development, economic growth and other domains of economic inquiry. This survey begins with stylized facts on groups around the world, and proceeds to a critical review the existing literature, which has focused almost entirely on groups as diversified entities and on conflicts between controlling and minority shareholders. Other schools of thought on the political economy of corporate groups, on groups and monopoly power, and on groups as networks are discussed next. We then proceed to promising, yet virtually unexplored, alternative lenses for viewing groups, for example, as quasi venture-capitalists or as family-based structures. The analysis points out important biases in the literature including the avoidance of a serious discussion of the origins of business groups, and the unfounded assumption that rent-seeking is the only feasible political economy equilibrium in an interaction between groups and the government. We note that the empirical tendency to use recent data implies that the vast majority of studies exploit cross-sectional variation; the absence of (long) time-series data ensures that some conceptually important issues, such as how groups shape the environment in which they operate, receive relatively little attention. Lastly, we outline an agenda for future research.

Globalization and Trust: Theory and Evidence from Cooperatives

We study the effect of globalization on the stock of trust in organizations. We present a simple model of endogenous trust and show that contrary to centralized hierarchies (pure limited liability firms), decentralized organizational structures (cooperatives) foster the emergence of trust. We treat organizations as directly observable ‘summary statistics’ for underlying trust and ask what will be the fate of trust as the world becomes increasingly globalized. Because the cooperative is an intrinsically less efficient organizational form and globalization implies harsher competitive pressures, conventional wisdom suggests that the viability of cooperatives is in jeopardy. We show that this is not necessarily true. If the increase in competition is bundled with an increase in uncertainty and risk, the cooperative may become a more efficient organizational form. We conclude that globalization does not necessarily erode trust. The case of Mondragón Corporación Cooperativa is used to motivate assumptions and illustrate the results.http://deepblue.lib.umich.edu/bitstream/2027.42/39978/3/wp592.pd

Globalization and Trust: Theory and Evidence from Cooperatives

We study the effect of globalization on the stock of trust in organizations. We present a simple model of endogenous trust and show that contrary to centralized hierarchies (pure limited liability firms), decentralized organizational structures (cooperatives) foster the emergence of trust. We treat organizations as directly observable ‘summary statistics’ for underlying trust and ask what will be the fate of trust as the world becomes increasingly globalized. Because the cooperative is an intrinsically less efficient organizational form and globalization implies harsher competitive pressures, conventional wisdom suggests that the viability of cooperatives is in jeopardy. We show that this is not necessarily true. If the increase in competition is bundled with an increase in uncertainty and risk, the cooperative may become a more efficient organizational form. We conclude that globalization does not necessarily erode trust. The case of Mondragón Corporación Cooperativa is used to motivate assumptions and illustrate the results.

Globalization and Similarities in Corporate Governance: A Cross-Country Analysis

Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices, while others maintain that such convergence will not occur because of a variety of forms of path-dependence. With new data on governance in 24 developing countries as well as data on laws protecting shareholders and creditors in 49 developed and developing countries, we search for evidence that globalization is correlated with similarity in corporate governance. We find robust evidence of de jure similarity in governance. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries - especially if the countries are both economically developed - appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, we find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels. This is consistent with either the proposition that complementarities result in different national systems appropriately having different corporate governance systems, or the proposition that globalization is not strong enough to overcome local vested interests. We conclude that globalization may have induced the adoption of some common corporate governance standards but that there is little evidence that these standards have been implemented.

Limits to Policy Reversal: Privatization in India

We examine the effect of regime change on privatization using the 2004 election surprise in India. In that election, the pro-reform BJP was un-expectedly defeated by a less reformist coalition. Government controlled companies that were being studied for complete privatization by the BJP dropped by 7.5 percent relative to private firms. By contrast, government controlled firms that were not being considered for privatization, or firms that had already been fully privatized firms, did not experience significant drop relative to private firms. Firms that the BJP had slated for definite future privatization experienced intermediate declines of approximately 3.5 percent. We interpret this as evidence consistent with investor belief of policy irreversibility in privatization, where reforms may reach a 'point of no return' beyond which future regimes have difficulty reversing those policies. Taking advantage of an 'intermediate' event where policies were expected to be more heavily influenced by the communist party, we still find evidence consistent with policy irreversibility.

Testing Limits to Policy Reversal: Evidence from Indian Privatizations

We examine the effect of regime change on privatization using the 2004 election surprise in India. The pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for definite privatization by the BJP dropped by 3.5 percent relative to private firms. Surprisingly, government-controlled companies that were only under study for possible privatization fell by 7.5 percent relative to private firms. We interpret this as evidence of investor belief of policy irreversibility, where reforms may reach a stage beyond which future regimes have difficulty reversing those policies. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to the government's privatization agenda.

Business Groups in Emerging Markets: Paragons or Parasites?

Diversified �business �groups, �consisting �of �legally �independent �firms �operating � across �diverse �industries, �are �ubiquitous �in �emerging �markets. �Groups �around �the �world � share �certain �attributes �but �also �vary �substantially �in �structure, �ownership, �and �other � dimensions. �This �paper �proposes �a �business �group �taxonomy, �which �is �used �to �formu-�? � late �hypotheses �and �present �evidence �about �the �reasons �for �the �formation, �prevalence, � and �evolution �of �groups �in �different �environments. �In �interpreting �the �evidence, �the � authors �pay �particular �attention �to �two �aspects �neglected �in �much �of �the �literature: �the � circumstances �under �which �groups �emerge �and �the �historical �evidence �on �some �of �the � questions �addressed �by �recent �studies. �They �argue �that �business �groups �are �responses � to �different �economic �conditions �and �that, �from �a �welfare �standpoint, �they �can �some-�? � times �be ��paragons� �and, �at �other �times, ��parasites.� �The �authors �conclude �with �an � agenda �for �future �research.