CHAPTER 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter of the research presents reviews of foreign and local literatures along
with reviews of foreign and local studies. The resources are taken from books, eBooks,
internet, and theses in connection with the subject matter, written by both foreign and
Filipino authors. This chapter will provide further enhancement of the knowledge and
understanding of the researchers.

Foreign Literature
Michael Carney (2008), in his book entitled, Asian Business Groups: Context,
Governance and Performance, stated that the definition of group membership is countryspecific, there is no unified approach to recording group affiliation.
China: Business groups are coalitions of firms from multiple industries that interact
the over long periods of time and are distinguished by elaborate inter-firm networks of
lending, trade, ownership, and social relations. The organizational structure of the
business group resembles a conglomerate, but relatively exclusive internal relations
make the group highly stable and resistant to organization.
India: Group firms in India are often link together through the ownership of equity
shares. In most cases the controlling shareholder is a family.
Japan: Japanese business groups are best defined as clusters of firms linked
through overlapping ties of shareholding, debt, interlocking directors, and dispatch of

personnel at other levels, shared history, membership in group wide clubs and councils,
and often shared brands.
Indonesia: The Indonesian business group is virtually interchangeable with
conglomerate. Indonesian business groups are comprised of strategically and
technologically unrelated companies. Regardless of how diversified, they are most
Indonesian business groups are controlled and managed by their founders and the
founders families and long-time friends.
Turkey: A business group is defined as having group members operating in more
than two industries where each industry is assigned a two digit SIC code.
A variety of different financial intermediaries exists to facilitate the flow of funds
between surplus spending units and deficit spending units. These different financial
intermediaries specialize in the types of deposits they accept (source of funds) and the
types of investments they make (uses of funds).
Commercial Banks accept both demand deposits in the form of checking accounts
and time deposits in the form of savings accounts and certificates of deposit. These funds
are loaned to individuals, business, and governments. Commercial banks are important
source of short-term loans. Seasonal business, such as retailers, certain manufacturers,
some food processors, and builders often require short-term financing to help them
through peak periods. Many other types of business have a more or less continuing need
for short-term financing and make prior arrangements with their banks to borrow on short
notice.

15

Banks are also a major source of term loans, which have initial maturities between
1 and 10 years and usually are repaid in installments over the life of the loan. The
proceeds from term-loans can be used to finance current assets, such as inventory or
accounts receivable, and to finance the purchase of fixed plant facilities and equipment,
as well as to repay other debts.
Insurance companies receive periodic or lump-sum premium payments from
individuals or organizations in exchange for agreeing to make certain future contractual
payments. Life insurance companies make payments to a beneficiary based on certain
events, such as death or disability of the insured party. Property and casualty insurance
companies make payments when a financial loss occurs due to such events as fire, theft,
accident, and illness. The premiums received are used to build reserves to pay future
claims. These reserves are invested in various types of assets, such as corporate
securities.
Finance companies obtain funds by issuing their own debt securities and through
loans from commercial banks. These funds are used to make loans to individuals and
business. Some finance companies are formed to finance the sale of the parent
company's products (Moyer, Mcguigan & Kretlow, 2001).
Finance companies cater to the particular needs of the individual borrower and
deliver a highly personalized credit service. Today, finance companies account for over
$1 trillion in assets, which include customer credit, loans to businesses, and mortgages.
They obtain their funds largely through the sale of large-denomination debt securities,
primarily commercial paper for the larger finance companies, and marketable and nonmarketable longer-term bonds and stock for the smaller ones. Additionally, finance

16

companies have lines of credit at commercial banks that can be used to supplement their
primary sources of funds in the event of a need. There are three basic types of finance
companies: firms that specialize in customer credit, firms that specialize in sales finance,
and firms that specialize in small business firm lending.
Sales Finance Companies make loans to both consumers and businesses to
finance the sale of items such as automobiles, pleasure boats, refrigerators and other
consumer durables. Many of the better known sales finance companies are captives of
the dealer or manufacturer of the product sold. For example, General Motors, Ford Motor
Co., Sears, Montgomery Ward, Motorola, and General Electric all have sales finance
companies. The loan contracts are standardized, and the dealer will complete the forms
with the consumer in order to obtain cash from the sales finance company at the
completion of the sale. These companies compete directly with commercial banks, credit
unions, and credit cards, all of which offer alternative sources of financing for consumer
purchases (Babbel & Santomero, 2001).
A firm might, for instance, set a major overall goal of becoming the dominant
producer in its domestic market. It might then develop a marketing objective of achieving
maximum sales penetration in each region, followed by a related pricing objective of
setting prices at levels that maximize sales. These objectives might lead to the adoption
of a low-price policy implemented by offering substantial price discounts to channel
members.
Price affects and is affected by the other elements of the marketing mix. Product
decisions, promotional plans, and distribution choices all impact the price of a good or
service. Basic so-called "fighting brands" are intended to capture market share from

17

higher-priced options-laden competitors by offering relatively low prices to entice

customers to give up some options in return for a cost savings.
While pricing objectives vary from firm to firm, they can be classified into four major
groups: (1) profitability objectives, (2) volume objectives, (3) meeting competition
objectives, and (4) prestige objectives. Not-for-profit organizations well as for-profit
companies must consider objectives of one kind or another when developing pricing
strategies (Boone & Kurtz, 2005).
Peter S. Rose (2002), in his book entitled Commercial Bank Management,
provided that a banking company that wishes to acquire 5 percent or more of the equity
shares of an additional bank must seek approval from the Federal Reserve Board and
demonstrate that such an acquisition will not significantly damage competition in the local
market, will promote public convenience, and will better serve the public's need for
financial services. Banks acquired by holding companies are referred to as affiliated
banks.
The ultimate standard of performance in a market-oriented economy is how
much net income remains for the owners of a business firm after all expenses (except
stockholder dividends) are charged against revenue. Most loan officers will look at both
pretax net income and after-tax net income to measure the overall financial success or
failure of a prospective borrower relative to comparable firms in the same industry.
According to the Cambridge Journal of Economics (2008) entitled, The impact of
business group affiliation on performance: evidence from Chinas national champions,
institutional changes in the national champion groups are responsible for the observed
high performance in member subsidiaries. This argument is consistent with previous

18

studies which find that certain institutional features more prevalent in Chinas largest
groups (such as finance companies and research and development centres) directly
improve member performance (Keister, 2000). Other studies, moreover, concentrating
specifically on Chinas groups, also give reasons as to why groups may provide benefits
to member firms. Nolan and Wang, have suggested on the basis of numerous case
studies that Chinese groups may pool and distribute heterogeneous resources for
member firms (such as management skills, brands, sales and marketing). It has also been
suggested that group membership may provide insulation from potential or real political
intervention, thus controlling an uncertain political environment while improving their
access to scarce goods (Keister, 2000). Moving beyond studies of Chinese business
groups, studies in other regions of the world also list numerous credible reasons as to
why business groups may enhance firm-level performance, a major one being the
presence of imperfect markets (Khanna and Yafeh, 2007). It is entirely conceivable, of
course, that Chinese groups do substitute for missing markets, hence leading to lower
transactions costs. Such missing markets are particularly severe in transition economies.
In other words, in the Chinese context it is possible that business groups are paragons
as opposed to parasites. Indeed, the only other study with direct similarities to ours,
looking at listed subsidiaries of groups, finds evidence that they may improve subsidiary
performance (Ma, Yao & Xi, 2006). Smyth (2000), in a synthesis of current arguments,
also concludes that groups may be beneficial to firm performance in China.
On balance then, there are many reasons and considerable evidence for believing
that business groups may improve firm performance in the Chinese context. Indeed, the

19

sheer proliferation of such groups, both state owned and private, would seem to suggest
they may enjoy some competitive advantages.
Marisetty & Subrahmanyam (2008), in the Journal of Financial Markets entitled,
Group Affiliation and the Performance of Initial Public Offerings in the Indian Stock
Market, showed that the relationship between group affiliation and firm performance has
been well documented in the finance, strategy and industrial organization literatures. The
broad consensus is that the specific institutional context of the economy plays an
important role in determining the merits and demerits of group affiliation. The evidence,
so far, suggests that in an environment with a relatively strong institutional infrastructure,
enterprises engaged in multiple businesses under-perform relative to those that are
focused on specific industries.
In contrast, in an environment with a relatively weak institutional infrastructure,
companies that belong to large, highly diversified groups tend to outperform stand-alone
companies. Firms in markets with a poor institutional infrastructure incur higher costs to
acquire finance, technology and managerial talent. Group affiliation reduces these costs
due to economies of scope and scale, and results in better performance. On the other
hand, if these necessary inputs for the growth of firms are easily available in the
marketplace, the positive group effect may disappear. In such cases, group affiliation
could be expensive, due to a lack of focus in one particular activity, resulting in
underperformance of group-affiliated companies when compared to their stand-alone
counterparts. This conclusion would be in line with the conglomerate discount
hypothesis regarding the industrialized countries, primarily the United States.

20

Estrin, Poukliakova & Shapiro (2009), in the Journal of Management Studies

entitled, The Performance Effects of Business Groups in Russia by, showed that the
benefits to group affiliation may be pronounced when business groups are relatively
young and when the institutional infrastructure is weak and uncertain. It therefore support
the view of Yiu, Lu, Bruton, & Hoskisson (2007) that firms adapt to their external
environments in different ways, and that these differences should be explicitly recognized.
There are important advantages to business groups and their affiliates when market
failures are present and when business groups are in the process of forming. These
advantages are linked to the relative benefits of internal markets that permit the transfer
of critical resources within the group network. These transfers provide competitive
advantage for the affiliates, but also promote group survival through internal redistribution.
Thus, they find evidence in support of what they term the BG Robustness interpretation
of RBG strategy, whereby firms affiliated with RBGs are more profitable other things being
equal, and that over time profits are redistributed from stronger to weaker group
members. Importantly, these results are robust to changes in specification and estimation
method, as well when as we control for multi-collinearity and potential indigeneity.

Local Literature
According to Republic Act No. 10142 - Financial Rehabilitation and Insolvency Act
(FRIA) of 2010":
Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation
(Perez, 2006).

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According to Republic Act No. 10149- GOCC Governance Act of 2011

Affiliate refers to a corporation fifty percent (50%) or less of the outstanding capital
stock of which is owned or controlled, directly or indirectly, by the GOCC (Cruz, 2007).
Salvador & Fua-Geronimo (2010), in their book entitled, Principles and Practices
of Management and Organization, stated that according to Haimann, the term
"Management" has three (3) distinct aspects: First, management as a field of study or a
subject. Refers to the principles and practices of management. It includes all the
principles and practices as a body of knowledge and its application in its entirety. This
approach, however, is limited to give the correct nature of management. Second,
management as a team or class of people. Refers to the group of managerial personnel
of an enterprise functioning in their supervisory activity. However, who are the managers
and what are the activities that should be treated as managerial, are hard to identify,
unless some yardsticks are prescribed. This becomes more difficult especially when
those performing managerial activities have different titles in one organization as well as
in different organizations. Lastly, management as a process. Refers to the different
processes or steps of management -- right from planning to organizing, staffing,
supervising and controlling. Management in this context has been defined as he process
of getting things done by and in cooperation with others.
Decision-making is a vital part of business organization and management. The
question then is "how is a good decision made in business operation?" A good part of the
answer is adequate information, and expertise in analyzing and interpreting necessary
data. Seeking the views and expertise of other personnel may also help, as dies the ability
to accept that one was wrong, and to change one's mind. There are also measures to a

22

good decision-making, various techniques which may help to make information adequate
and better analyzed, and to add objective precision to decision-making in order to reduce
the amount of subjectivity. There are two (2) definitions of decision-making according to
Robert Harris: First, Decision-making is a study of identifying and choosing alternatives
based on the values and preferences if decision maker. And second, decision-making is
the process of sufficiently reducing uncertainty and doubt about alternatives to allow a
reasonable choice to be made from among them.
Baysa & Lupisan (2014), in their book entitled, Advanced Accounting Part 2,
discussed that an enterprise may undertake expansions in several ways. It may expand
through acquisition or construction of new facilities or through a business combination.
Business combinations may be preferred over other means of expansion for the following
reasons: First, cost advantage- it is frequently less expensive for a firm to obtain needed
facilities through combination than through development. This is particularly true in
periods of inflation. Second, lower risk- the purchase of established product lines and
markets is normally less risky than developing new products and markets. Business
combination is especially less risky when the objective is diversification. For companies
in industries already plagued with excess manufacturing capacity, business combination
may be the only way to grow. Third, fewer operating delays- plant facilities acquired
through business combination are already operative and have met environmental and
other governmental regulations. A company that will new facilities can expect numerous
delay in constructions, as well as in getting the required governmental approval to
commence operations. Environmental impact studies alone can take months or even
years to complete. Fourth, avoidance of takeovers- many companies combine to avoid

23

being acquired themselves. Smaller companies tend to be more vulnerable to corporate

takeovers, so many of them adopt aggressive buyer strategies as the best defense
against takeover attempts by other companies. Fifth, acquisition of intangible assetsbusiness combinations bring together both tangible and intangible resources. Thus, the
acquisition of patents, mineral rights, research, customer databases, or management
expertise may be a primary motivating factor in a particular business. And lastly,
companies may choose a business combination over other forms of expansion for
business tax advantages (such as tax-loss carryforwards) for personal income and estate
tax advantages, and for personal reasons.
Agamata (2012), in his book entitled, Management Advisory Services: A
Comprehensive Guide, discussed that the quality of decisions makes what an
organization is. And making decisions could either be centralized or decentralized. When
decisions are made only by the head of the organization, it is called a centralized
organization. When the authority to make decisions is delegated to responsible officers,
in different organizational levels, it is called a decentralized organization. Either models,
centralization or decentralization, could bring great results. However, managers have
come to realize that by doing things either others, they can produce astounding results,
and more wealth. When they trust others and delegate authority, decisions are faster, and
actions are quicker, and services become more satisfying to customers. These
organizational attributes are needed to stay abreast and relevant in a competitive market.
This premise gives birth to the practice of decentralization.

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Foreign Studies
According to the study of Fangzhou Shi (2015) entitled Business Group Affiliation
Improves New Firms Profitability, business groups that function as legally independent
firms and that are connected with common concentrated equity ownership are a dominant
structure outside of the United States. Several studies show that such groups are also
widespread in the new firm sector. As shown in this paper, business groups are a
pervasive ownership structure for new firms across industries in European countries. Its
dominant role dwarfs other common ownership structures for new firms, such as venture
capital (VC). The total effect of business group affiliation is controversial. On the one
hand, business group affiliation could be beneficial to group members by providing
financing advantages, improving operating efficiency, promoting R&D investment and
knowledge spillovers, and creating an internal labor market. On the financing advantage,
group members can leverage the groups internal capital market and reputation, receive
contingent support, and share risk among group members. All of these benefits make the
business group an ideal ownership structure for new firms, which tend to be financially
constrained, vulnerable to financial shocks, highly risky, but active in innovation. On the
other hand, certain disadvantages of group affiliation may be more severe for new firms.
Among the various means of expropriation by the ultimate owner, the most notorious
phenomenon is tunneling. New firms usually gravitate to the bottom of the ownership
chains, where the diversion incentives are larger.
A group can be described as a corporate organization where a number of firms are
linked through stock-pyramids and cross ownership. Typically in a group, a single
individual, family or coalition of families controls a number of firms. Relative to

25

independent firms, group structures are associated with greater use of internal factor
markets, including financial markets. Through their internal financial markets, groups may
allocate capital among firms within the group which can lead to economic benefits
especially when external financing is scarce and uncertain, such as for young and fast
growing firms or for firms which face temporary financial distress. These benefits of
internal markets may in turn be reflected in higher firm valuation and better firm
performance. Internal markets in combination with the typically complex ownership and
control structure of group-affiliated firms may, however, lead to greater agency problems.
The study of Claessens, Fan & Lang (2002), entitled, The Benefits and Costs of
Group Affiliation: Evidence from East Asia, suggests that there may be gains from group
affiliation, however, these gains do not come about automatically and can also differ by
country. This suggests that any gains depend on the countrys institutional context. It may
be that the benefits of internal markets are the greatest in those countries in which the
impact of agency problems are also the most severe. That is, while in countries with the
least developed external financial markets the potential beneficial role of internal markets
may be the greatest, it is likely that the ability to mitigate any agency problems associated
with group structures is also the weakest in these countries. This suggests that reforms
focusing on reducing agency problems may enhance the efficiency of the use of internal
markets and at the same time diminish the need for internal markets as they also
encourage the development of external financial markets. Thus, reforms could have gains
on both accounts although the exact relationships between internal markets functioning
and specific features of countries institutional framework remain to be researched more
in depth.

26

According to the study of Carney, Gedajlovic & Heugens (N.D), entitled, Business
Group Affiliation, Performance, Context and Strategy: A Meta- Analysis, the past decade
has witnessed a surge in research regarding the performance of business groups (BGs),
which Khanna and Rivkin (2001) define as firms which though legally independent, are
bound together by a constellation of formal and informal ties and are accustomed to taking
coordinated action. Three points of consensus are apparent in this body of work. First,
BGs are ubiquitous in many countries with types such as Japanese Keiretsus and
Zaibatsu, South Korean Chaebols, Latin Americas Grupos Economicos, Hong Kongs
Hongs, Indias Business Houses, Taiwans Guanxiqiye, Russias Oligarchs and Chinas
QiyeJituan becoming emblematic of their nations enterprise systems.
A second area of consensus is that BGs are structurally different from
conglomerate organizations, described by Williamson as H- and M-forms. While
coordination in conglomerates takes place through the unified internal control of a
portfolio of firms, coordination in BGs relies on a more complex web of mechanisms, such
as multiple and reciprocated equity, debt, and commercial ties and kinship affiliation
between top managers.
A third widely held position is that BGs owe their predominance in many countries
to the existence of market failures and poor-quality legal and regulatory institutions. In
this view, BG formation has taken place in these contexts in order to internalize
transactions in the absence of reliable trading partners or legal safeguards to guarantee
transactions between unaffiliated firms. Despite these points of consensus, disagreement
fueled by ambiguous research findings is apparent over the general question of whether
or not the net economic and social effects of BGs are positive. Such disagreement is

27

evident in characterizations of BGs by scholars as either heroes or villains, paragons or

parasites, red barons or robbers barons, or anachronisms or avatars. Specifically, a
lack of consensus exists on four key issues regarding BG performance and strategies.
First, researchers are divided regarding the performance implications of BG
affiliation. While some scholars theorize that the net effect of affiliation on profits is
positive, others argue that it is negative for some or all firms, and each can point to
empirical support for their positions. Researchers using exchange theory, transaction cost
analysis, and the resource-based view (RBV) of the firm find that affiliation enhances
performance. Yet others have found that these potential advantages are often not realized
due to various offsetting costs of affiliation. A third group of scholars have found that the
relationship between affiliation and performance is not universal, and that some firms
within a BG benefit at the expense of others. The effect of affiliation on performance
therefore remains an open question.
Second, uncertainty also exists regarding the institution-level variables which
moderate the affiliationperformance relationship. The prevailing viewpoint is that BG
affiliation benefits firms most in developing contexts characterized by voids in hard and
soft infrastructure, but the evidence on this point is inconclusive. In a study of BG affiliation
in fourteen emerging economies, Khanna and Rivkin (2001) find that affiliation is
beneficial in six countries, detrimental in three others, and ineffectual in the remaining
five. They conclude that the performance effects of BG affiliation resist any simple
normative categorization and that a definitive understanding of their effects in various
national contexts must await further data collection and empirical inquiry.

28

Third, while many studies have examined the performance consequences of

affiliation, there is a shortage of research examining the strategies of BG affiliates. As a
result, there is little evidence on the issues of whether the strategies of affiliate firms are
different from non-affiliated firms, and if so, whether these distinctive strategies affect the
relationship between affiliation and financial performance. A clearer understanding of
affiliate strategic behavior may therefore shed new light on the ambiguous findings
regarding the profit impact of BG affiliation.
Fourth, the evidence concerning BG performance has primarily been drawn from
studies at the affiliate rather than the group level. This is concerning because some of the
main theoretical arguments suggesting superior BG performs emphasize their aggregate
scale and scope efficiencies. For instance, it is widely argued that the performance
advantages of BGs are a function of their market power and capacity to wield political
influence. Similarly, Khanna and Palepus core argument also pertains to the group level
of analysis, as the success of BGs in emerging markets is attributed to their ability to
mimic market institutions. Thus, there appears to be a disconnect in the BG literature
between theories which emphasize group-level phenomena and empirical studies which
examine performance at the affiliate level.
Komera, Jijo & Sasidharan (N.D.), in their study entitled, Does Business Group
Affiliation Encourage R&D Activities? Evidence from India, showed that business group
affiliation has a significant positive influence on the sample firms R&D activities (both
propensity for undertaking R&D activities and R&D intensity).The results are robust to the
alternative definitions of R&D intensity such as R&D to sales ratio. They find that business
groups diversification across the related industries strengthens the business group

29

innovation relationship, whereas diversification across unrelated industries weakens the

relationship. This supports the argument of spillovers of innovation benefits and
knowledge sharing among the group affiliated firms operating in the related industries.
The empirical evidence suggests that sample firms capital market participation and their
external financial dependence do not strengthen the business group innovation
relationship. Such a finding complements the earlier evidence that the emerging market
firms do not use the external finance to fund their R&D activities.
Further, they find that the influence of business group affiliation on sample firms
R&D activities declines with time. The passage of time during the study period coincides
with the improvement in the efficiency of institutional mechanisms in India. Hence, it may
be argued that the importance of business group reputation and its internal capital
markets in facilitating the funding for R&D activities declines as the efficiency of
institutional mechanisms improves. Such an argument complements the institutional
voids theory for the existence of business groups in emerging markets, like India.
Kumar, Pedersen & Zattoni (2008), in their study entitled, The performance of
business group firms during institutional transition: A longitudinal study of Indian firms
showed that business group affiliated firms outperform unaffiliated firms in early phase of
transition, while they lose their advantage in the latter phases of transition, second,
benefits of group membership differ for different types of member firms; lastly, a time
series cross-sectional approach may improves the reliability of findings on the effects of
group membership during institutional transitions. This research investigated the link
between firm performance and the evolution of institutional environment in emerging
economies. Evidence from this study indicates that in the first phase of transition group

30

affiliated companies continue to outperform unaffiliated companies, while in the second

phase they lose their advantage. Furthermore, our findings show that benefits for group
membership are not homogeneous, but differ by age and sector of affiliated companies.
These findings expand traditional understandings of the relationship between firms
performance and institutional context in emerging economies, and provide further support
to the idea that the relative performance of group affiliated companies is contingent upon
both the characteristics of the institutional context, and their peculiar features.

Local Studies
Garcia, Jardin, Lapuz, Leynes & Ocreto (2014), in their study entitled, Magnifying
The Total Quality Management and Financial Implications of Toyota Motor Philippines
Corporation, provided an overview on Toyotas Management that its philosophy has
evolved from the company's origins and has been reflected in terms "Kaizen/Continuous
Improvement", "Toyota Production System" and "Toyota Way", which it was instrumental
in developing. The Toyota way has four components: 1) Long term thinking as a basis for
management decisions, 2) a process for problem-solving, 3) adding value to the
organization by developing its people, 4) recognizing that continuously solving root
problems drives organizational learning. The Toyota Way incorporates the Toyota
Production System. Toyota has achieved the premier position in overall customer
satisfaction for the fourth consecutive time, according to the J.D. Power and Associates
2005 Germany Customer Satisfaction Index (CSI) Study. Toyota has scored 856 points
on 1000-point scale, performing particularly well in the areas of quality and reliability,
service satisfaction and ownership costs. In addition, Toyota models ranked number one

31

in five out of seven segments. Toyota's sales grew representing continuous high demand
for all its models. This robust sales level was again made possible because of the
continued strong performance of its best-selling vehicle, the Vios and the Filipino favorite,
the Innova.
Bautista, Jarapan, Lagunzad, Lapara, Mateo & Simborio (2007), in their thesis
entitled Metrobank Is Just A Click Away, they provided an overview about the banking
industry. Leading the future of the industry means having to change a lot of things, while
keeping intact what made it the largest and number one bank in the country today.
Change for the bank brings with it an all-new perspective of doing business and a
renewed focus on its expertise-nurturing clients and financial stewardship. Through its
corporate social responsibility and unwavering service to its clients, the Philippines'
premier bank the Metropolitan Bank and Trust Company (Metrobank) has taken it upon
itself to celebrate another innovative service to cater customer needs through Electronic
Delivery Channels (EDC). At this age where rapid changing technology dominates
peoples' lifestyle. It's edge to continually cope and surpass these conditions. Because of
the countless benefits technology brings, Metrobank strengthens it's competitiveness by
producing a strong and sophisticated information technology that allows the use of latest
innovations without comprising security. They reach highly diversified customers base
through an extensive distribution of network. At the same time by delivering a wide array
of premium value product and services. Through EDC, banking is just a click away.
Metrobank stands out to continue providing meaningful contributions for the economic
and social development of the community in which they serve another reason for Filipinos
to be proud of. Whatever your needs are, Metrobank's array of electronic delivery

32

channels are guaranteed to make your life easy and worry-free. Complementing
Metrobank's ATM cards is a suite of electronic channels- mobile banking, phone banking
and Metrobankdirect, Metrobank's internet banking facility. Now banking is literally at your
fingertips anytime anywhere.
Rapisura, Rom & Sapetin (2011), in their study entitled, Focusing The Lens On
The Business: The Management Perspective To The Financial Performance Of A.L.
Salazar Construction Inc. Based On Erich Helfert's Three-Point Performance Measures
showed that in a world of competition, "Profit" is objective of every organization, and this
profit increases with the better financial performance. The organization has to achieve its
goals and profits accordingly and improve its profit and performance from previous years
and with similar organizations. One such tool is the financial analysis with the help of
various methods to interpret the performance. We know that business is mainly
concerned with financial activities. In order to ascertain the financial status of the business
every enterprise prepares certain statements, mainly prepared for decision making
purpose. But the information as is provided in these statements is not adequately helpful
in drawing conclusion. Thus, an effective analysis and interpretation of all factors affecting
performance is required.
Asa, Gatchalian & Reyes (2011), in their study entitled, Achieving Maximum
Advantage Thru Sound Financial Management Of Bayan Telecommunications, Inc.
provided an overview that sound financial management is both science and art that
requires careful tracking and prudent management of your organizations financial
resources and cash flows. With sound financial management, an organization can
understand its cost and incomes; without it, an organization compounds any operational

33

problems and invites additional outside scrutiny. Unfortunately this is often an area
neglected by many business owners and managers. Businesses must have financial
control systems that are not complex, that provide early indications of potential problems,
and that result in clear, timely and appropriate decision being made. Sound financial
management is crucial to the success of any business. It involve financial decisions,
ranging from major to minor decisions which includes whether to accept or reject a
proposed project, make or buy decision, purchase or not a capital asset and the like that
requires an initial outflow of cash for an expected inflow or return in the return. Regular
monitoring of cash flows forms part of the important decisions they make to insure that
they have sufficient funds to meet the firms obligations to their creditors. While
companies undertakings to continuously improve its risk management capabilities,
cognizant of the dynamism of business and the industry, and in line with its goal to
enhance value for its stakeholders, they also strive to achieve excellence in the quality of
their products by innovations and they make every effort to attain superiority in landline
communication and internet services. A comprehensive financial plan is therefore needed
to aid in evaluation of an investors current and future financial state by using currently
known variables to predict future cash flows, asset values and withdrawal plans. It
provides them roadmaps for guiding, coordinating and controlling the objectives.
Baba, Daanan & Dela Cruz (2013), in their study entitled, Highlighting The Impact
Of Credit Management Of Pag-Ibig Fund To Its Financial Performance provided an
overview that Credit Management is the process for controlling and collecting payments
from your customers. A good credit management system will help businesses reduce the
amount of capital tied up with debtors and minimize your exposure to bad debts. The

34

credit crunch brought about fundamental changes in how companies manage their
businesses. The emphasis today is on liquidity aspects of managing the business and
less on top line growth. More and more companies are undertaking a value judgment by
comparing the potential the risk of non-payment (borrower insolvency) versus potential
new or additional sales volume. Good credit management is vital to company's cash flow.
It is possible to be profitable on paper and but lack the cash to continue operating your
business. Credit management today is facing significant challenges because the
assessment of risk and the potential impact on liquidity has become more difficult.
Liquidity remains a critical element in the current credit climate as customers are using
longer payment terms, delinquencies are on the rise and banks are less inclined to help
bridge the gap.

Synthesis
The review of related literatures and studies presented in this chapter guide the
researchers to have a better understanding about the subject matter of the study and
provide appropriate perception that gave the researchers a clear direction in the conduct
of the study.
The foreign and local literatures showed several definitions and discussions about
group affiliation that added additional knowledge for the researchers as far as the subject
matter is concerned.
This study is similar to the foreign study entitled Business Group Affiliation
Improves New Firms Profitability by Fangzhou Shi (2015) in which the author discussed
that the business group affiliation leads to an increase in new firms profitability during the

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first six years. Shi further present evidence consistent with two channels. First, new firms
quickly increase revenues and expand market shares after joining business groups,
possibly leveraging on groups marketing networks. Second, group affiliation triggers a
higher ratio of top manager turnover and leads to more experienced top managers and
more productive employees. It is possible that business groups provide a talent pool of
managers and better monitor new firms labor force. However, the difference arises since
Shi focuses on a new firms profitability.
Moreover, this study is also similar with the study entitled The performance of
business group firms during institutional transition: A longitudinal study of Indian firms by
Kumar, Pedersen and Zattoni (2008). The authors test for effects of business group
affiliation on firm performance over a 17 year time period from 1990 to 2006. Their findings
show that (i) the performance benefits of group affiliation erode with the evolution of the
institutional environment; (ii) older affiliated firms are better able to cope with institutional
transition than younger affiliated firms; (iii) service-sector affiliated firms are better able to
cope with institutional transition than manufacturing-sector affiliated firms. Furthermore,
their findings both support the institution- and transaction costs-based theory of business
groups that helped the researchers as a guide in formulating some parts of this thesis.
In this chapter the researchers find that there is broad agreement among
researchers and scholars that business group affiliations are a phenomenon of great
theoretical perception and also an important point of contention and ambiguity regarding
their financial performance and strategies.

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The literatures and studies in this chapter enhanced the researchers ideas and
knowledge regarding the subject matter of the study. Furthermore, the studies have
strengthened the foundation of this study since the conclusions and perceptions they
furnished gave this study the information it needed in the realization of the analysis.

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