Abstract
We examine comparative financial performance of business groups in
Pakistan employing samples of firms listed on the Karachi Stock Exchange,
Our descriptive results show that group firms are larger in size
and have higher operating profits. Group firms also exhibit lower
sales growth variability over a five year period than non-business
group firms. Our statistical analysis reveals that business group
firms have significantly higher liquidity and significantly lower
financial leverage than the non-business group firms. More importantly,
business group firms are more profitable (higher ROA) than non-group
firms. Our results based on superior financial performance of business
groups indicate that business groups in Pakistan are efficient economic
arrangements that substitute for missing or inefficient outside institutions
and markets, hence supporting the market failure argument.
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