Tarun Khanna

DO FIRMS LEARN TO CREATE VALUE? THE CASE OF ALLIANCES

We investigate whether firms learn to manage interfirm alliances as experience accumulates. We use contract-specific experience measures in a data set of over 2000 joint ventures and licensing agreements, and value creation measures derived from the abnormal stock returns surrounding alliance announcements. Learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities. We find evidence of large learning effects in managing joint ventures, but no such evidence for licensing contracts. The effects of learning on value creation are strongest for research joint ventures, and weakest for marketing joint ventures. These results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity.Copyright

ESTIMATING THE PERFORMANCE EFFECTS OF BUSINESS GROUPS IN EMERGING MARKETS

Business groups—confederations of legally independent firms—are ubiquitous in emerging economies, yet very little is known about their effects on the performance of affiliated firms. We conceive of business groups as responses to market failures and high transaction costs. In doing so, we develop hypotheses about the effects of group affiliation on firm profitability: affiliation could either boost or depress firm profitability, and members of a group are likely to earn rates of return similar to other members of the same group. Using a unique data set compiled largely from local sources, we test for these effects in 14 emerging markets: Argentina, Brazil, Chile, India, Indonesia, Israel, Mexico, Peru, the Philippines, South Africa, South Korea, Taiwan, Thailand, and Turkey. We find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine. Group affiliation appears to have as profound an effect on profitability as does industry membership, yet strategy scholars have a much clearer grasp of industries than of groups. Moreover, membership in a group raises the profitability of the average group member in several of the markets we examine. This runs contrary to the wisdom, conventional in advanced economies, that unrelated diversification depresses profitability. Overall, our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts; conclusions drawn in one context may well not apply to another. Copyright

The Future of Business Groups in Emerging Markets: Long Run Evidence from Chile

We demonstrate variation in the extent to which firms benefit from their affiliation with Chilean business groups in the 1988-1996 period. The net benefits of unrelated diversification are positive if group diversification exceeds a threshold level, though this threshold increases with time. We find evidence of non-diversification related group benefits, which atrophy over time. We conjecture that the evolution of institutional context alters the value creating potential of business groups, though it does so slowly.

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.

Analyst Activity Around the World

In this paper we provide evidence on analyst activity and performance in 47 countries around the world, including several emerging market economies. Our empirical analysis first demonstrates wide variation in the extent and accuracy of analyst activity across our sample countries. A handful of country-specific measures, such as the average firm size, the size of the stock market relative to country GDP, the quality of accounting disclosures, and the countrys legal origin, explain a sizeable part of this variation. For a subset of 15 emerging markets in Asia and Latin America, we also investigate the proposition that the business groups, commonly found in these regions, which often take the form of pyramidal ownership structures, hamper analyst activity and their forecast performance. We find that, after controlling for other factors, the earnings of group affiliates are indeed harder to forecast than those of unaffiliated firms. However, group affiliates are more likely to be followed by analysts. Our analysis also shows that the magnitude of the group effect is small, and that it is overshadowed by country-specific contextual factors. Overall, our results are consistent with the view that the transparency problem in an economy is primarily influenced by its legal and information context, rather than by how companies are organized in the economy.

Facilitating Development: The Role of Business Groups

A defining characteristic of developing countries is the inadequacy of basic services normally required to support organized economic activity. One way in which the private sector acts to facilitate development is through investments orchestrated by agglomerations of firms called business groups. Such groups dominate the landscape of virtually all developing countries. Our study of plant location decisions in India shows that group-affiliates are more likely to (profitably) locate in less-developed states than unaffiliated firms. The magnitudes of the effects are large and significant, with group affiliates being between 20% and 33% more likely to locate in less-developed states than unaffiliated firms. We suggest that this is because the scale and scope of groups, and the de facto property rights enforcement within groups in environments where legal enforcement is lacking, permit them to overcome of the difficulties that impair production in underdeveloped regions.

Interorganizational Ties and Business Group Boundaries: Evidence from an Emerging Economy

We identify which types of ties best distinguish pairs of Chilean firms in the same business group from pairs of Chilean firms that are not group brethren. Overlap in owners, indirect equity holdings, and director interlocks are especially strong delineators of group boundaries. Family connections and direct equity holdings do not do as good a job of distinguishing group boundaries. These findings challenge the longstanding conventional wisdom among field-based scholars that family bonds are the defining feature of business groups in emerging markets. We speculate that family bonds are so durable that, over time, they come to pervade the entirety of an economy and lose their ability to distinguish business groups from the overall network of social and economic ties. Our techniques to identify business groups may apply to research on other types of groupsinterpersonal and interorganizationalin which ties among actors are multiplex, ties are only partly observed, and group definitions are socially constructed.

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 Indias 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.

Perspectives on how goverments matter

This special topic forum explores how governments matter in a number of ways: the extent to which government action can foster industry creation and economic development, the impact of corrupt governments on firm-level decision making by managers of multinational enterprises, the concept of the attractiveness of political markets and the impacts they can have on firm-level strategies, and how deregulation can affect the governance mechanisms of firms. Here we offer readers four views on research issues intended to complement the STF articles and to suggest other avenues for fruitful research.

Racing behavior technological evolution in the high-end computer industry

Abstract In a thirty-year period, firms in the high-end computer industry compete for technological leadership with select subgroups of firms. A clustering technique is used to identify these subgroups of firms. In each of the three such ‘races’ that I identify, a firms racing rivals influence the evolution of its own technology frontier. This approach complements life-cycle and other models of technological evolution. A central role is assigned to strategic interactions between firms. Different kinds of strategic interactions lead to intra-race and inter-race behavior. I demonstrate how such inter-firm interactions map into technological evolution at the industry level and suggest that the patterns seen here can help us understand technological evolution in a range of environments.