Business Groups and Employment

Using a newly assembled 50-country firm-level database spanning 19 years, we document a bright side for employees of business group–affiliated firms: less pronounced fluctuations in employment than unaffiliated firms in response to macroeconomic shocks. The results are robust to a variety of tests designed to mitigate endogeneity concerns, including propensity score matching and comparisons of successful and failed group integrations, and are present in both booms and recessions. Our results are most consistent with group internal labor markets rather than several alternative explanations (internal capital markets, a lower overall sensitivity to shocks in group firms, or agency problems). This paper was accepted by David Simchi-Levi, finance.