In this paper we seek to shed light on the perseverance of business groups in developed economies, and to provide insights into the persistent underdevelopment of capital markets in these economies. We also verify assumptions made in previous research (e.g., Barca and Becht (2001) that institutional investors controlled by a business group act as “vehicles of power” for the controlling shareholder. We use mutual fund investment decisions in IPOs in which prices of the transactions and the participation of group managed funds are evident. We point to an interesting finding: ownership of financial intermediaries gives business groups the ability to go public with firms that are less profitable, yet they benefit from notably high prices on the stocks sold. This price increase is absorbed by all institutional investors who participate in IPOs generated from the business groups with affiliated financial intermediaries. In this way the business groups systematically weaken the efficiency of capital allocation in stock-exchange offerings.