Business Group’s Performance: Market and Non-Market Measures in Pakistan

Abstract

This study examines the influence of market and non-market strategies on the financial performance of firms affiliated with business groups. The study analyzed 136 non-financial firms affiliated with business groups, listed on the Pakistan Stock Exchange for the period 2010 to 2020. Market strategies focused on firm related resources diversification, financial constraints and internal capital generation rate. Whereas, non-market strategies focused on political connections and corporate social responsibility. Using fixed effect panel regression model, we found that for business-group firms, both market and non-market strategies significantly increase financial performance. Diversification, financial constraints and internal capital generation drive market success, while political connections and strong corporate social responsibility contribute through non-market measures. This suggested that business group affiliated firms should carefully choose a mix of market and non-market resources for optimal performance. This is also suggested that regulatory authorities shall introduce such policies that smoothen the business operations and encourage managers of affiliated firms to employ more combinations of market and non-market resources to get competitive advantage and promote responsible business practices within the groups.