When does it make sense to focus business portfolios? A study of business group responses to institutional change in India

This paper aims to report the findings from a longitudinal study of Indian business groups responding to the pro-market reforms that the government had initiated. It explores their diversification choices at the group level and the group performance consequences of these choices during a period of institutional changes (1990-2008).

Ordinary least squares regressions were used to analyze data spanning the 1988-2008 study period for 98 Indian business groups.

Results show that business groups that focused their portfolios in the early stages of institutional reforms tended to perform worse than their counterparts that did not do so. However, as market reforms became more established, business groups that made the transition from an unfocused to a more focused portfolio experienced superior performance consequences.

The findings underscore the temporal dimension of focusing and suggest that both changing strategy by refocusing business portfolio too early or waiting too long to refocus can hurt performance outcomes.