Performance of Pakistani Business Groups During Energy Crisis

Abstract

Considering the market imperfection theory, this study analyses the performance of Pakistani business groups using a data set of 253 firms from 2003-2012. We find that group affiliation plays a significant role in firm performance due to the group’s ability to better cope with inefficiencies and facilitate the member firms’ access to capital. Moreover, business groups become more integrated during industrial downturns. They are better able to absorb the negative shocks that the economy has suffered during the energy crisis, with the help of group level resources. Finally, the performance of Pakistani export-oriented firms is significantly negative during the energy crisis. Also, insignificantly lower performance by export-oriented manufacturing group affiliates during the crisis suggests that they pay more attention to their profitable local industry ventures during the energy crisis. Overall, our findings suggest that business groups perform better when market inefficiencies increase.