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More than a Fair Share? Principal-Principal Conflicts in Emerging Markets: Evidence from India
Published in Elsevier
Volume: 8
Issue: 6
Pages: 31 - 46
The concentrated ownership structure of emerging market firms may help mitigate principal-agent conflicts; however, the presence of two sets of principals, promoters with controlling stake and dispersed shareholders, may give rise to principal-principal conflicts. India, where firms are largely organized as business groups, with stock pyramids and complex cross-ownership structures, presents a distinctive venue to study the presence of such conflicts. This paper tests if the principal-principal conflicts transpire in the form of risk aversion when Indian bidders seek to merge or acquire. We observe that Indian bidders resort to risk-aversion only when promoters have high cash flow rights, that is, when they hold a majority stake in the acquiring firm. We argue that in business group firms this happens due to ‘tunnelling distortion’, whereas in standalone firms, this occurs due to ‘portfolio concentration’.
About the journal
JournalData powered by TypesetSSRN Electronic Journal
PublisherData powered by TypesetElsevier
Open AccessYes