The effect of affiliation structure on the performance of pyramidal business groups

Abstract

Empirical research concerning business groups has documented the effects of group size and diversification on group-level performance. We argue that these effects are contingent on the group affiliation structure and occur through the following two mechanisms: connectedness and risk-sharing. We tested for moderation effects in a panel dataset of 127 pyramidal business groups in Brazil during the period from 2001 to 2015. We found that while the number of corporate layers in the pyramidal ownership structure positively moderates the effect of size on group-level performance, the concentration of affiliates in the first layer shows a negative moderation. We also demonstrated that limited diversification in the first corporate layer reduces the effect of size on group-level performance.