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 standalone 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.
The present study inspects the comparative effects of inside shareholding on firm value for group-affiliated firms and non-group-affiliated firms in Pakistan. The research uses the excess-value as a performance measure by employing a chop-shop approach in treatment effects regression model (TERM). The results reveal that lower level and higher level inside shareholding negatively associated with firms’ value. However, it positively relates at a moderate level. Also, inside shareholding-value relationship differs significantly for group-affiliated firms and non-group-affiliated firms. Firms with inside shareholding at lower level appear to more visible in business groups, and these firms show adverse firms’ value consistent with divergence of interest effect. Nevertheless, inside ownership firms at a higher level, namely standalone firms, negatively affect firm value with entrenchment effect. The findings also confirm non-linearity in inside shareholding-firm value relationships.
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