Affiliation and Firm Performance: Evidence from Indian Business Groups

Using data on a sample of Indian firms from 1996-2006, we examine the effect of group affiliation on firm performance. After controlling for the differences in firm size, growth opportunities and leverage, the findings indicate that group affiliation exerts a salutary impact on firm performance, measured in terms of adjusted Q or RoA. Moreover, the evidence indicates that tunneling is not an important factor driving the valuation and profitability effect of group affiliation.