The Paradoxical Effect of Business Group Affiliation on Innovations

Abstract

The endogenous growth issues for business-group affiliations draw growing attentions. This paper compares innovation outcomes in group-affiliated firms and that in standalones, and further tests the moderation effect of the potential improvement measures. Our results show that group-affiliated feature is positively related with product and process innovation, while negatively related with organizational innovation. Meanwhile, the positive effect on process innovation could be strengthened under high top manager experience or high local market-orientation and the negative effect on organizational innovation could be mitigated under high top manager experience as well. This paper unveils the paradoxical roles of internal network of business group and gives practical solutions to cope with them.