Author: Ramesh Jangili
Title: The Impact of Size and Group Affiliation in Emerging Markets: A Cost Efficiency Analysis of Indian Firms
Abstract: Despite strengthening market discipline and improving overall competition, emerging markets, like India, still have severe information problems. Large firms and group firms in these markets have the potential to gain differential advantage as well as destroy value. We analyse the cost efficiency performance of firms in India: the degree of cost efficiency with respect to firm size and the cost efficiency of firms affiliated to business groups with that of standalone firms. We find that as firm size increases the degree of cost efficiency decreases and standalone firms exhibit better cost efficiency scores when compared with that of group affiliated firms. This supports the view that firms having either market power or involved in explicit or implicit form collusion incur higher costs. Alternatively, firms which do not have market power minimises the cost in a better way.
Keywords: Cost Efficiency, Size, Group Affiliation, Stochastic Frontier Analysis
JEL Code: L25, D24, M21