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Crises as Opportunities for Growth: The Strategic Value of Business Group Affiliation

Published online by Cambridge University Press:  09 September 2022

Ronald W. Masulis ,
Peter K. Pham ,
Jason Zein Open the ORCID record for Jason Zein [Opens in a new window]  and
Alvin E. S. Ang
Ronald W. Masulis
Affiliation:
UNSW Sydney School of Banking and Finance ron.masulis@unsw.edu.au
Peter K. Pham*
Affiliation:
UNSW Sydney School of Banking and Finance
Jason Zein
Affiliation:
UNSW Sydney School of Banking and Finance j.zein@unsw.edu.au
Alvin E. S. Ang
Affiliation:
Chinese University of Hong Kong CUHK Business School alvinang@cuhk.edu.hk
*
peter.pham@unsw.edu.au (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We document a novel strategic motive for family business groups to utilize their internal capital markets (ICMs) during financial crises. We find that crisis-period group ICM activity is targeted toward exerting product market dominance over standalone rivals. Groups make significant post-crisis gains in market share that are concentrated among affiliates (and industry segments within affiliates) operating in highly competitive product markets, where capturing such gains is difficult in normal times. These patterns are observed only in emerging markets, suggesting that ICMs enable groups to exploit crises to realize long-term competitive advantages only when rivals face chronic financing frictions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 4 , June 2023 , pp. 1508 - 1546
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article is based on the first chapter of Alvin E. S. Ang’s dissertation at UNSW Sydney. We thank Mario Daniele Amore, Demian Berchtold, Zsuzsa Réka Huszár, Fawzi Hyder, Frederick Dongchuhl Oh, David Reeb, Takeshi Yamada, Jing Zhao, session participants at the 2015 Asian Finance Association Conference, 2015 Financial Management Association Annual Meeting, 2015 Financial Management Association Asian Conference, 2015 Financial Management Association European Conference, 2015 Northern Finance Association Conference, 2015 Southwestern Finance Association Conference, 2015 Summer Institute of Finance Conference, and seminar participants at the National University of Singapore, University of Sydney, and the University of Adelaide for suggestions. All errors remain our own.

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