Business groups and entrepreneurship in developing countries after reforms

• We study startup and growth of businesses in developing countries postreforms.
• We find the likelihood of startup by BGs declines as markets develop after reforms.
• We find a higher likelihood of startup by BGs in certain industries.
• We find that startups by BGs grow more than startups by independent entrepreneurs.

Drawing from the literature on markets and market development we develop hypotheses on the startup and growth of formal business by business groups relative to independent entrepreneurs after reforms. We then test the hypotheses in a large sample of firms that were started up after reforms in one large developing country—India. Findings show that (a) the likelihood of formal business startup by business groups, relative to independent entrepreneurs, declines with market development following reforms, (b) the likelihood of formal business startup by business groups, relative to independent entrepreneurs, is greater in industries privatized by reforms and in industries with greater foreign firm presence, and (c) formal businesses started by business groups experience greater growth than formal businesses started by independent entrepreneurs.