Affiliation or non-affiliation: The impact of family-owned business groups on the Bogotá stock market, 1950-1980

This paper examines the impact of group affiliation on the development of Bogota’s stock market between 1950 and 1980. While the literature on business groups has discussed how they respond to market failures, little attention has been paid to the specific ways in which group affiliation affects stock market development in emerging economies. This study aims to fill this gap by analyzing panel data from Bogota’s stock market and implementing a series of correlated random effects panel regressions. The findings of this study demonstrate that group affiliation had a significant impact on the weighted market capitalization of stocks issued by listed companies. Specifically, high trading volumes were concentrated on a small subset of firms, suggesting that group-affiliated companies were able to capture the stock market as a means of financing their investments and increasing their product and geographic diversification. While the literature on business groups suggests that they typically arise in the absence of a developed capital market, our study reveals a different dynamic in the case of Colombia, where these groups advocated for the creation of the stock exchange. Hence, our findings challenge the misconception of inefficient and illiquid financial markets in emerging economies and shed new light on the role of business groups in driving financial market development.