Abstract
This study examines the institutional mechanisms through which business groups impact innovation in emerging markets. Rather than merely viewing groups as the result of a weak institutional environment, this study proposes that there are complementary elements between groups and institutions, enabling groups to benefit from interactions with their institutional environment. Evidence from a large sample of Chinese firms indicates that the effects of groups on innovation are pronounced when the group is affiliated to a higher level government agency and when the level of region-specific marketization is higher. The findings point to the context-dependent nature of the innovation and the existence of both substitution and complementary effects between business groups and institutions.
Highlights
Institutional theory suggests that innovation depends on the interaction between the firm and its external environment (Mahmood, Chung, & Mitchell, 2012)
The current study develops a contingency model to examine the institutional conditions under which group affiliation impacts innovation of emerging market enterprises (EMEs)
The current study addresses this gap by considering how the value of group affiliation is influenced by the level of state ownership of the group, and by examining the idiosyncratic manner in which these groups are affiliated to government
Summary
Institutional theory suggests that innovation depends on the interaction between the firm and its external environment (Mahmood, Chung, & Mitchell, 2012). A higher degree of state ownership ensures that decisionmaking within state-owned groups is aligned with the strategic objectives of the state, including technological catch up and international knowledge sourcing Such ties with government help the group secure legitimacy and privileged market access, obtain critical resources and reduce environmental uncertainty. State ownership can help firms attract foreign technology providers (Buckley, Wang & Clegg, 2007), widening the technological options of all group affiliates Such complementarities may reduce information and innovation costs, assist groups in allocating their resources more efficiently, and thereby enhance innovation performance. Prior research emphasizes the role of government in the formation and development of groups in emerging markets (Yiu et al, 2005) This view is supported by the data that indicate that the levels of state ownership and government affiliation are higher in groups than in independent firms. (Neter, Wasserman, & Kutner, 1985), indicating that multicollinearity does not influence the estimates
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