Business groups and firm-specific characteristics: influences on entrepreneurial orientation

Abstract

PurposeThe purpose of this study is to investigate the impact of business group (BG) affiliation on affiliated firms' entrepreneurial orientation (EO). The authors further investigate the possible contingent factors affecting this relationship – the age of BGs and the affiliated firm’s external linkages (ratio of external to in-house interlocks) on the relationship in an emerging market context.Design/methodology/approachThe study employs a dynamic panel data framework using the system-generalized method of moments (Sys-GMM) on a sample of 670 NSE-listed Indian firms during the 2006–2019 period. EO is measured through content analysis of the letters to shareholders (LTS) issued by the companies between the period 2006 and 2019.FindingsBG affiliates have more EO than standalone firms, as affiliates can access group-wide resources and capabilities apart from firm-specific resources. Affiliates of older BG have less EO since they are more entrenched in the institutional settings of their BG. Affiliates with more external linkages of board members will have a higher level of EO, as such linkages would subside inertial tendencies by exposing them to novel sets of information, resources and strategic practices. Further, the negative effect of BG age on EO is countered by external linkages. Overall, the study shows that the effect of group affiliation is not uniform and is contingent on the factors we have theorized and tested.Originality/valueThe paper proposes the resource-based view and the institutional void theory as likely candidates for explaining the contribution of BGs towards the EO of its affiliates, especially in the context of emerging markets. The contingent role of BG age highlighted in the paper forewarns managers about the importance of establishing internal mechanisms to preserve the EO in affiliates. Our findings about the positive role played by external linkages of the board members provide one such mechanism that can be leveraged to enhance affiliated firm’s EO.