Business Groups : Are They More Efficient than Conglomerates and Stand-Alone Units?

This paper argues that groups reduce bankruptcy costs with respect not only to stand-alone units (thanks to coinsurance) but to conglomerates as well (thanks to corporate limited liability). This allows groups to save on contagion costs, thereby generating more value than conglomerates despite a higher cost of debt due to a lower recovery rate for their lenders. We also show that group survival skills paradoxically generate a value discount if they are matched to other organizations without accounting for their lower mortality during industry downturns. This insight may reconcile contrasting findings about group relative efficiency