Modernizing without Westernizing: Social Structure and Economic Action in the Indian Financial Sector

To better understand whether the transition by Asian countries toward market economies mirrors the path taken in the West, we ask how embedded network ties between equity analysts and the chief executive officers (CEOs) of the firms that they follow in India influence the accuracy of analysts' earnings forecasts. We contrast traditional institutions of caste and regional language with contemporary institutions, such as universities, as the locus of such ties. We posit that CEOs from the postreform generation are more likely to transfer material private information via their school ties, while prereform-generation CEOs favor caste or language ties. Contrasting domestic business groups (BGs) with Western multinational corporations (MNCs) as organizational contexts, we argue that BGs legitimate the transfer of private information along particularistic ties, whereas MNCs mitigate such transfers. Our conceptual framework is supported by analyses that draw on a sample of 1,552 earnings forecasts issued between 2001 and 2010 by 296 equity analysts. Our findings suggest that the embeddedness perspective should be broadened to incorporate the influence of the larger historical social structures within which economic action is embedded, and to view BGs as carriers and repositories that blend modern management practices with particularistic behavioral patterns among top executives.