Impact of listing and group affiliation on firm performance evidence from Indian nonfinancial firms

Abstract

newline It is extremely useful to investigate the determinants of firm performance for the benefit of all stakeholders of a firm. Researchers find that group affiliation, listing status, leverage, size, age, promoters holding, export intensity, selling and distribution expenses, firm efficiency and industry concentration are important variables in explaining firm performance. Among these variables, group affiliation and listing are the two most examined variables in the literature. Listing provides access to resources for firms, not only in capital markets but also in labor and product markets. Developed economies have well established economic and legal institutions that ensure implementation and enforcement of economic contracts between different parties of the contract. Thus the benefits of listing are more pronounced in developed economies. However, emerging economies suffer from institutional voids. Absence of well-established financial and legal institutions hampers raising resources from the market. These institutional voids are the origin for existence and growth of business groups in emerging economies. One expects that the importance of business groups reduces with economic reforms in an economy as economic and legal institutions develop. Conversely, in the Indian context we note that even though the economic reforms were launched in 1991 business groups still remain a force to reckon with. newlineThus in the Indian context two factors i.e. group affiliation and listing, play an important role in determining firm performance. No prior research has been conducted to examine the joint impact of listing and group affiliation on firm performance. Further, the effect of independent variables on firm performance may be impacted by group affiliation and / or listing status. Therefore we analyze the determinants of firm performance at aggregate level and also at classified levels for different categories of firms.