Indian business houses: Splits and beyond

Abstract

From the Unites States and Europe to Chile, South Korea and Latin America, business groups dominate the business environment. Even in India, publicly listed companies of just about 11 Indian business houses were reported to have a combined market capitalization of about US $ 300 bn, making up nearly 30% of India’s total market capitalization. Thus it is beyond doubt that business groups are an integral part of any economy. In emerging economies such as India, family business groups dominate the business environment, yet they have not been extensively studied. Through this project we carry out an extensive literature survey on family business groups and try to explore the reasons that lead to a split in family run businesses. We contend that diversity, the number of stakeholders, the age of the group and the geographic location play a role in not only the splits in business groups, but also determine whether the split will be acrimonious or harmonious. We use data on the top 50 business groups in India to determine the dominant reasons from among the above that contribute to a split in the business groups. The test of significance on the sample data revealed that the as the diversification in the groups increased, so did the probability of splits. It was also found that the greater the diversification, the lower the likelihood of the split being acrimonious. We further found that the greater the number of stakeholders, the lower the likelihood of the split. Based on our results and our inferences from the same, we hypothesize that a trade-off exists between diversification and the probability of a split in the business group. We hypothesize that increasing the diversification increases the probability of the split, but leads to harmonious splits. However, the concentration of business groups make splits less likely but increases the chance of a split being acrimonious if it does occur.