Kellogg School of Management
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NBER Working Papers and Publications
|April 2008||Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms|
with Randall Morck, Bernard Yeung: w13914
The fundamental unit of production in microeconomics is the firm, and this mirrors reality in the United States and United Kingdom. But elsewhere, business groups can be the more important unit, for business strategy is often formulated at the business group level, not the firm level. In many countries, this is legally enshrined in corporate governance codes that assign officers and directors a duty to act for their business group, not their firm or its shareholders. Even where a duty to individual firms' shareholders exists, business groups often have pyramidal structures of intercorporate blockholdings that entrench controlling shareholders, usually wealthy families, who run their groups to maximize their utility. This can impose exacerbated agency problems. In either case, foreign joint...