Infant firms in emerging market: An analysis of stand-alones vs. subsidiaries

Newly established manufacturing firms in Korea without any corporate shareholder participation — stand-alones — exhibit significantly higher profitability and smaller asset size compared to those set up by corporate shareholders — subsidiaries. This pattern holds even for stand-alones and subsidiaries set up by the same controlling shareholder. Such differences in profitability do not seem to be driven by inherent differences in business risk nor reflected in post-establishment survival rates. Moreover, infant firms' overall profitability depends more on internal transactions with affiliated firms than external transactions.