Common Owner, Uncommon Value: Business Group Ownership and Firm Growth Opportunities

Abstract

Recent research on business groups has traced their continued growth, despite widespread institutional changes, to their inherent characteristics such as diverse business portfolio and multi-entity structure. We add to this stream of work by focusing on the third important characteristic of business groups, viz., their ownership structure. In sharp contrast to the prevailing view that business group core owners use their control to expropriate minority shareholders in weak institutional environments, we focus on their value adding potential in strengthened institutional environments. We argue that higher levels of controlling ownership positively influence all key drivers of opportunity pursuit by firms, viz., motivation, firm-specific knowledge, and controllability, and hence a firm’s growth opportunities. More significantly, we highlight the common nature of business group ownership that distinguishes them from controlling owners of standalone firms. We argue that this common characteristic together with control enables business group owners to orchestrate resource and information transfer across affiliate firms and importantly leverage their accumulated expertise of making decisions to positively influence growth opportunities of affiliate firms. We test our arguments on a sample of Indian firms during the time period 2001-2019 and find significant support. Our work adds to business group research by investigating a defining yet understudied characteristic of business groups—common ownership. By demonstrating their value adding role, we complement the emerging body of work that looks beyond institutional environment-based explanations for the existence of business groups. Our work also has significant implications for the nascent competence-based view in ownership research.