Institutional and Strategic Sources of Decoupling: Strategic Decoupling in Korean Business Groups

Abstract

This paper examines sources of the decoupling between stated business areas (i.e. officially announced SIC code of the focal firm) and actual business activities in member companies of business groups. We argue that a firm often strategically decouples how it externally represents its activities and what it actually does to deal with institutional pressures. In examining institutional and strategic sources of SIC decoupling, we pay special attention to the idiosyncratic natures of business group focusing on its strategic inclination to diversify. Our empirical study analyzed the data spanning fourteen years from 1987 to 2000, examining 339 member companies belonging to the thirty largest Korean business groups often referred to as Chaebols. The results from our analysis suggest that the decoupling between stated and actual business areas of a member belonging to a business group is affected positively by the number of regulations on the focal industry, negatively by societal pressure toward high accountability of business groups, positively by the strategic importance of the focal member company to the focal business group, and negatively by the focal member company¡¯s niche overlap with other member companies of the focal group. However, the negative effect of niche overlap was found to become weaker with the increase of regulations on the focal industry and also with the increase of the focal member company¡¯ performance. General implications on organization theory and management studies are discussed.