"Divided We Stand, United We Fall: Internal Coupling Structure and Business Group Failure"

Abstract

The role of internal coupling structure in business groups is a central concern in the business group literature; yet, most empirical studies focus on the performance of affiliated firms. This study investigates how the extent of coupling among firms in a group affects group-level performance. Coupling creates interdependence among group firms and compounds risk within groups. Moreover, coupling buffers group firms from environmental selection so that coupled groups sustain weak firms that would have failed otherwise, consequently reducing the survival chances of the whole group. Based on this logic, I propose that the greater the coupling of group firms, the higher the group failure rate, especially in resource-scarce environments. A longitudinal analysis of 5,850 Korean business groups over a 20-year period, 1988-2007, supports my predictions. Tight coupling among affiliated firms in a group through corporate governance and internal transactions increases the failure rate of business groups, especially ...