Modernizing Without Westernizing: Social Structure and Economic Action in the Indian Financial Sector

Abstract

In seeking to understand whether the transition by Asian countries to market economies mirrors the path taken by the West, we ask how embedded network ties between equity analysts and the CEOs of the firms they follow in India influence the accuracy of analysts’ earnings forecasts. We contrast traditional institutions of caste and regional language with contemporary institutions such as universities as the locus for such ties. We posit that CEOs from the post-economic-reform generation in India are more likely to transfer material private information via their school ties while pre-reform generation CEOs favor caste or language ties. We then contrast domestic business groups (BGs) with western MNCs as organizational contexts and argue that BGs legitimate the transfer of private information along particularistic ties, whereas MNCs mitigate such transfers. Our conceptual framework is supported by analyses that draw on a sample of 1,552 earnings forecasts issued from 2001 to 2010 by 296 equity analysts. Our findings suggest that the embeddedness perspective should be broadened to incorporate the influence of larger historical social structures within which economic action is embedded, and to view BGs as carriers and repositories that blend modern management practices with particularistic behavioral patterns among top executives.