This research analyzes the internal capital allocation decisions in Mexican family business groups using a novel approach in which allocation decisions are not only influenced by efficiency (firm performance) but also by the social connections among the managers of the funded firms and the family that controls the group. The results suggest that family ownership and group affiliation have economically large effects on firm performance, meaning that family firms outperform non-family firms and, within family firms, those affiliated with a business group exhibit higher performance than those standing alone. These findings also indicate that professional-managed firms outperform family-managed firms, except when the CEO is the founder of the firm; implying that founders have a personal bias toward their offspring because more competent individuals are not considered to manage the firm. Additional analysis reveals that the internal capital allocation process in Mexico is inefficient because there are strong nepotism practices that favor family managers over non-family managers. These socialist tendencies are aligned with the dark side theories of internal capital allocation, in which weak-performing firms receive too much capital (family-managed firms) and strong-performing firms receive too little (non-family-managed firms).
Keywords: Capital allocation, family business groups, social connections, corporate governance.
|Advisor:||Perales, Norma Alicia Hernandez|
|School:||Instituto Tecnologico y de Estudios Superiores de Monterrey (Mexico)|
|Source:||DAI-A 74/10(E), Dissertation Abstracts International|
|Subjects:||Business administration, Management, Finance|
|Keywords:||Capital allocation, Emerging markets, Financial performance, Internal capital|
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