Business Groups’ Financial Performance : Evidence from Pakistan

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