Business Group Level Research Articles

Related party transactions and tax avoidance: does government ownership play a role?

Purpose This study aims to examine the association between related-party transactions (RPT) and tax avoidance. The study further investigates whether government ownership improves scrutiny of tax aggressiveness activities among Taiwanese group companies. Design/methodology/approach The authors used 16,061 firm-year observations derived from the Taiwan Economic Journal Database (TEJ) from 2005 to 2021. The authors applied GLS fixed-effect regression. Additional tests, such as a difference-in-difference examination, propensity score matching (PSM) analysis and other tests were performed to obtain more robust results. Findings The results show different consequences between eliminated and non-eliminated RPT toward tax avoidance. RPT enhances tax benefits aligned with the efficient contracting hypothesis. Under varying degrees of government control, this paper empirically reveals that government ownership has a role in mitigating tax avoidance. This implies that government control improves corporate governance by balancing opportunistic and efficiency-based tax avoidance. Practical implications This paper provides substantial practical implications since using the strategy of reducing taxes through RPT will result in greater tax savings at the business group level. Therefore, RPT is beneficial for enhancing business efficiency. Furthermore, government control increases corporate governance quality, which could lead to balancing tax aggressiveness activity. Originality/value Using a unique setting for RPT reporting in Taiwan, this paper divides RPT into eliminated and non-eliminated RPT. The findings offer significant insight for policymakers, investors and managers regarding the utilization of RPT to enhance efficiency in business groups. Additionally, this paper highlights the role of government control in preserving a harmonious balance in tax planning practices.

A Social Capital Perspective to Explain Internationalization of Business Group Affiliated Firms

We construct a theoretical framework that offers two different forms (primary and secondary) of social capital to explain the mechanisms behind internationalization of business group (BG) affiliated firms. We propose that BG level interorganizational network ties creates domestic focus opportunity-motivation-ability in affiliated firm which is detrimental to affiliate level degree of internationalization. We further propose that affiliate level internal network configuration (combined effect of network density and network hierarchy) and external network relation (combined effect of trust and identification) create international focus opportunity-motivation-ability and alleviate negative effect of network ties on affiliate’s degree of internationalization. Our theoretical framework contributes to the global strategy of BG research where the key concepts of networks, social capital, and organizational international strategy intersect.

THE ROLE OF SOCIAL NETWORKS IN FOREIGN DIRECT INVESTMENTS: THE CASE OF TURKISH BUSINESS GROUPS

Bu çalışmanın amacı, Türk işletme gruplarının sahip oldukları ağ yapılarının doğrudan yabancı yatırım kararları üzerindeki etkisini incelemektir. Bu doğrultuda işletme grubu düzeyinde ele alınan sosyal ağ yapıları (merkezilik ve arasındalık boyutlarında) örtüşen yönetim kurulları bağlamında değerlendirilmektedir. Çalışmanın kapsamı, kasıtlı örneklem yöntemine göre belirlenen 13 işletme grubundan, bu işletme gruplarına bağlı şirketler olarak faaliyet gösteren 83 bağlı işletmeden oluşmaktadır. Çalışmada öncelikle toplamda 96 işletmenin (13 holding ve 83 bağlı şirket) 1997-2019 yılları arasında elde edilen verileri ile ağ yapıları (merkezilik ve arasındalık dereceleri) ortaya konulmaktadır. Sonrasında da çalışma kapsamında geliştirilen hipotezler, panel regresyon modelleri aracılığıyla test edilmektedir. Çalışmanın bulguları, işletme grubu düzeyinde derece merkeziliğinin işletme gruplarının DYY karar ve faaliyetlerini olumlu yönde etkilediğini ortaya koymaktadır. Çalışma kapsamında elde edilen diğer önemli bulgu ise işletme grubu düzeyinde arasındalığın işletme gruplarının DYY faaliyetleri üzerinde herhangi bir etkisinin olmadığını göstermektedir.

The shadow of a departing CEO: outsider succession and strategic change in a business group

ABSTRACT This study examined the influence of both departing and incoming CEOs on strategic change. Highlighting the importance of taking a business group-level approach in the study of CEO succession in emerging economies, the study investigated the interaction effect of departing and incoming CEOs on strategic change in group-affiliated firms in Korea. We distinguished outsider successors into in-group and group outsiders. Our theory and the evidence from a sample of 304 CEO successions suggests that group outsiders significantly differ from in-group outsiders in their reaction to the shadow of departing CEOs, although both are outsiders at the firm level. The negative CEO retention effect on strategic change was attenuated by new CEOs coming from outside the business group. Our findings regarding moderating effects also show that the strategic change effects of outsiders are stronger in the event of a global financial crisis. Our results reveal the contrasting views relating to the group-level transfer of executives, providing insights for both researchers and practitioners.

Business Network Literature Review: A Mini-Review Approach

This study aims to find the formulation of factors that can influence the development of business networks both locally and globally. This study used a qualitative method by reviewing 27 journals from previous researchers. The results of this study indicate that multi-actor factors are useful for understanding business networks. Ex-ante signaling and filtering factors at the contractual relationship formation stage are complementary mechanisms that enhance network performance. Agency approach, structure approach and practice approach affect the performance of the business network. Another factor that can improve the performance of a business network is clustering social audiences in a business information network. Organizational variables such as participatory architecture, organizational integration, and mechanisms play a relevant role in protecting and developing business networks. The next finding is that the management relationship factor can improve the performance of the small and medium business network. Value creation innovation includes new capabilities, technology and processes as well as partnerships for the purpose of co-creation that can reduce risk in the business network. Linkage factors and their effect on network connectivity can play a relevant role in strategic business decisions. The role of dynamic capabilities in encouraging business model innovation, especially in market-oriented small and medium enterprises, can encourage innovation in the business model of the small and medium enterprises themselves. Other factors that can affect the efficiency of a business network are intellectual agility, leadership and micro-enterprise innovation mediated through entrepreneurial leadership. The large structure in a business network can positively affect business performance through linkage mechanisms. Whereas the presence of a large number of affiliates in the first company layer of the affiliate structure causes a decrease in the effect of size on the group level performance of the business. Limited diversification at the business group level in the first corporate layer of the affiliate structure results in reduced returns in terms of risk sharing, because shareholders can reduce their investment, thus negatively impacting the overall group level performance. The role of religion and spirituality in the context of a business network greatly influences the strength of a business network.

Client’s Bargaining Power and Audit Negotiation over Earnings: Evidence from Audit Processes in a Business Groups Environment

This paper identifies and analyzes contextual factors in the audit environment at the business group level, and finds that the structural complexity of business groups and business group owners’ controlling power are significant factors that may influence auditor behavior during the audit negotiation process. Using data for the pre-audit earnings that is uniquely available in South Korea, we find that business group affiliation and the existence of circular control links within business groups are significantly and positively associated with auditors’ agreement regarding earnings initially proposed by the management of client firms. We also find that both owners’ excessive voting rights over cash-flow rights and related party transactions are significantly positively associated with auditors’ agreement regarding the earnings initially proposed by the management of client firms. Our findings will help elucidate the contextual factors that can impact clients’ bargaining powers in audit negotiation processes.

Interplay between dual dimensions of knowledge sharing within globalized chaebols: The moderating effects of organization size and global environmental munificence

Existing literature exploring ambidexterity based on the organizational and network learning perspectives is sparse. In particular, there are few studies dealing with the characteristics of ambidexterity construct in the context of inter-organizational relationships, and existing studies are limited. To date, studies have suggested only vague and inconclusive conceptualizations and empirical findings. Our research tackles this overlooked area of thought by dismantling the mechanisms of ambidextrous knowledge sharing among group-affiliated companies within the large complex Korean business group known as a chaebol and the impact of those mechanisms on the companies’ global performances. An internationalized chaebol is a cradle of transnational knowledge and resource sharing that functions as a business group–level knowledge reservoir. Conceptually, our research employs two dimensions of ambidextrous knowledge sharing, “balance dimension (BD) of ambidextrous knowledge sharing” and “synergistic dimension (SD) of ambidextrous knowledge sharing,” among group-affiliated companies within a chaebol. In this way, we clarify the conceptual issues regarding the degree to which ambidextrous knowledge sharing affects the extent of explorative relative to exploitative knowledge sharing or affects the combined synergistic extent of both activities. We collect survey data from 337 manufacturing multinational group-affiliated companies that belong to 61 internationally diversified chaebols. We analyze this data using ordinary least squares (OLS) regression with the hierarchical method. Our results show that having a balance between explorative and exploitative knowledge sharing among group-affiliated companies (i.e., BD) within a chaebol increases the global performance of that chaebol’s group-affiliated companies. High synergistic levels of ambidextrous knowledge sharing among group-affiliated companies (i.e., SD) also enhance the group-affiliated companies’ global performance. In addition, our study reveals the moderating effects that organization size and environmental munificence have on the interactions of BD and SD.

Related Party Transactions and Tax Avoidance of Business Groups

This study aims to examine if the firms in business groups avoid tax by related party transactions. If other conditions are the same, firms have an incentive to maximize after-tax profits by minimizing tax burden. If the firms are in business groups, they tend to minimize tax at the business group level. It is expected that the level of tax avoidance of both parties of related party transactions will be high if tax is minimized at the business group level as the transactions will be made at a level that can minimize the tax of both the firm that reduces the taxable income through related party transactions and the firm whose taxable income increases. In addition, the effect of being in a Chaebol business group and the effect of the Unfair Related Party Transactions Tax Law on the association with related party transactions and tax avoidance are also examined. According to this study, the firms in business groups avoid tax by related party transactions. It is also found out that tax avoidance by related party transactions is done more aggressively in Chaebol member firms than non-Chaebol firms, while tax avoidance by related party transactions in Chaebol business groups decreases after the implementation of the Unfair Related Party Transactions Tax Law.

International orientation and business group performance: moderating role of product diversification (evidence from India)

Research on internationalisation and product diversification are primarily conducted at the firm level, leading to lack of understanding of these phenomena at the business group level. We address this gap by examining the effect of international orientation and product diversification on performance of business group and the moderating role of product diversification on international orientation and performance relationship. Using a sample of business groups from India, we tested our hypothesis by applying GLS fixed-effect regression model. Our result suggests that international orientation has a negative effect whereas product diversification has a positive effect on performance of business group. Further, presence of product diversification enhances the negative effect of international orientation on performance of business groups. Research findings have important implications for researchers as well as for business group managers.

ORGANIZATION DESIGN AND CORPORATE GOVERNANCE OF BUSINESS GROUPS: A COMPARISON OF THE PUBLIC AND PRIVATE SECTOR

Business groups are large inter-organizational entities that significantly contribute to economic activities worldwide. While being a highly relevant form of business organization in many emerging nations (Hoskisson, Johnson, Tihanyi, & White, 2005), they are still well represented in some of the post-socialistic countries. For instance, private- and public- sector (state-owned) business groups in Croatia account for a one third of the GDP (Lider, 2011) and play a very important role in the development of the national economy. However, we know very little about the corporate strategy, governance processes and organizational structure applied within business groups, especially given the fact that business groups around the world vary considerably (Khanna & Yafeh, 2007). Therefore, the aim of the paper is to examine how business groups in Croatia are organized and managed. A comparative analysis of the largest business groups listed by the Croatian Chamber of Commerce offers useful insights about their level of diversification, group configuration and board structure, as well as regarding the organizational architecture of their holding company, the current level of the group internationalization, and the business group-level performance. The results clearly show similarities and differences present between among private- and state-owned business groups of interest. Thus, the paper contributes to better understanding of organizing practices of the largest business systems in Croatia, and offers specific insights about the divide between the private- and public-sector business groups.

The Effect of Corporate Governance on Firm Market Value and Profitability: Time-Series Evidence from Turkey

We study the corporate governance practices of Turkish public firms from 2006 to 2012, relying on hand-collected data covering the vast majority of listed firms. We build a Turkey Corporate Governance Index, TCGI, composed of subindices for board structure, board procedure, disclosure, ownership, and shareholder rights. TCGI predicts higher market value (with firm fixed effects) and higher firm-level profitability with firm random effects. The principal subindex which predicts higher market value and profitability, and drives the results for TCGI as a whole, is disclosure subindex. We also study the determinants of firms' governance and find that most firm-specific factors have little effect on firms’ governance choices.In a related project, The Effect of Business Group Governance on Group Market Value and Profitability: Time-Series Evidence from Turkey, http://ssrn.com/abstract=2277768, we study the effect of business group-level corporate governance on group level market value and profitability.

Resource Deepening Vs. Resource Extension: Impact on Asset-Seeking Acquisition Performance

Seeking critical assets is known to be a key motivation for emerging economy firms to make acquisitions in foreign markets, especially those in developed economies. In this study, we probe this motivation further by identifying two categories of asset-seeking acquisitions: resource deepening and resource extension. Using a sample of 1004 cross-border acquisitions conducted by Indian firms during the period 2000–2010, we find support for the hypothesis that the type of resources sought and their intended utility impacts acquisition performance. Additionally, for resource extension acquisitions, we find that acquisition performance outcomes vary by the assimilative capacity of the firm and the extent of experience in acquisitions at the firm and business group level.

Stock return commonality within business groups: Fundamentals or sentiment?

We examine stock return comovement within business groups in Korea. Based on all publicly traded stocks from 1980 to 2009, we document that stocks of companies belonging to the same business group co-move with each other more than do stocks in the same industry. The within-group correlation in excess of the within-industry correlation has become more pronounced over time, especially following the 1997–98 Asian crisis. The increase in correlation appears to be driven more by non-fundamental factors such as correlated trading, rather than fundamental factors such as related-party transactions. Our study adds to the literature by showing that non-fundamental stock return correlation – i.e., categorization or habitat-driven stock comovement – exists even at the business-group level.

Defying isomorphism in foreign-location choice: The role of business group-level international experience in Korean MNCs

This study contributes to our understanding of how institutions shape the internationalization processes of Asian multinational corporations (MNCs). I explore how business-group affiliation affects the ability of MNCs to escape isomorphic pressures in overseas location choices. From a sample of Korean MNCs, I find that this ability increases with the levels of firm-specific advantages and international experience held by the respective MNC and that international experience within the same business group of the MNC also mediates this ability. This article contributes to the institution-based view of international strategy and business by identifying mechanism through which business-group affiliation, a common characteristic of Asian business systems, affects MNC decision making.

A perceptual approach to understanding user-generated media behavior

Purpose – As the pervasiveness of blogging becomes comingled in personal and corporate lives, companies are harvesting useful information from user-generated media. It appears that user-generated media (e.g. blogs, among others) has become an increasingly important way for companies to connect with customers. Though blogging activity is a fast emerging phenomenon, however, to date only a handful of research has been done by scholars about blogging activity. The little research done on blogging has focused on the company perspective; how companies can use blogs to interact with their customers, but did not examine the individual blogger ' s viewpoint. Hence, the main objective of this study is to help fill that void in the literature and ascertain the following: to lay the groundwork for understanding the factors that enhance bloggers ' attitudes toward participating in blogging activity and how bloggers ' attitudes influence their propensity to blog. Design/methodology/approach – A structural model was developed depicting the relationships among key constructs of research interest. This model reflects theories drawn from social psychology and the literature on marketing and information systems. Structural equation modeling (SEM) methodology was used to empirically validate the model and its hypotheses. Findings – Results of the SEM analysis indicated that bloggers ' knowledge, bloggers ' responsiveness to their readers, bloggers ' market mavenism, and bloggers ' social network optimization had a strong influence on attitude which in turn influenced propensity to blog. Research limitations/implications – This research has certain limitations. First, resource constraints limited the collection of data to only US consumers, so the analysis of this study may only be generalized over population groups within the USA. A future replicating study of this kind would help to verify if the final model of this study holds true in different countries and cultures. A second limitation is that in this study the unit of analysis is at the individual level. Future studies could examine these effects at multiple levels of analysis such as network and business group level, firm level, and country and region level to understand the behavior of bloggers in those settings. Originality/value – In this paper the two germane theories (e.g. theories of network effect and diffusion of innovation) are presented. Related theoretical rationales form the bases for hypotheses underlying the model framework. The second section discusses the empirical tests and validation of the model and presents the results of the SEM methodology. The final section discusses implications of the findings, summarizes limitations, and offers suggestions for future research.

From social ties to embedded competencies: the case of business groups

Our current views of economic competition are still rooted in the imagery of the isolated firm that transacts with its buyers, suppliers, and competitors via largely anonymous factor and product markets. Yet this view is fundamentally at odds with the growing importance of business groups in the global economy. We thus need a reconceptualized version of our idea of economic competition, which is capable of explaining competitive advantage at the group-versus-group rather than firm-versus-firm level of analysis. In the present paper we build on insights derived from organizational sociology and organizational economics to develop a business group-level theory of competition and competitive advantage based on embedded competencies.

From Social Ties to Embedded Competencies: The Case of Business Groups

Our current views of economic competition are still rooted in the imagery of the isolated firm that transacts with its buyers, suppliers, and competitors via largely anonymous factor and product markets. Yet this view is fundamentally at odds with the growing importance of business groups in the global economy. We thus need a reconceptualized version of our idea of economic competition, which is capable of explaining competitive advantage at the group-versus-group rather than firm-versus-firm level of analysis. In the present paper we build on insights derived from organizational sociology and organizational economics to develop a business group-level theory of competition and competitive advantage based on embedded competencies.

Spatial agglomeration and business groups: New evidence from Italian industrial districts

Cainelli G., Iacobucci D. and Morganti E. (2006) Spatial agglomeration and business groups: new evidence from Italian industrial districts, Regional Studies 40, 507–518. This paper is a first attempt to analyse the relationship between spatial agglomeration and firms' organizational structures. It takes advantage of a new and large data set at firm and business group level that allows one to analyse the differences in the presence and characteristics of business groups between districts and non-district areas. Overall, the results confirm the hypothesis that spatial agglomeration of business activities influences firms' organization. Groups are more widespread in industrial districts than in non-district areas; moreover, groups in industrial districts are less diversified and more spatially concentrated than groups outside industrial districts. Cainelli G., Iacobucci D. et Morganti E. (2006) L'agglomération géographique et les groupes commerciaux: de nouvelles preuves provenant des districts italiens, Regional Studies 40, 507–518. Cet article constitue une première tentative d'analyser le rapport entre l'agglommération géographique et les structures organisationnelles des entreprises. On profite d'une nouvelle banque de données importante auprès des entreprises et des activités commerciales qui permet l'analyse des différences de la présence et des caractéristiques des groupes commerciaux implantés dans les districts par rapport à ceux qui sont implantés dans d'autres délimitations géographiques. Tout considéré, les résultats confirment l'hypothèse suivant: l'agglomération des activités commerciales influent sur l'organisation des entreprises. Les groupes s'avèrent plus éparpillés dans les districts industriels qu'ils ne le sont ailleurs. Qui plus est, les groupes situés dans les districts industriels sont moins diversifiés et plus concentrés géographiquement que ne le sont les groupes situés en dehors des districts industriels. Groupes commerciaux, Districts industriels, Agglomération géographique, Formes d'organisation des entreprises Cainelli G., Iacobucci D. und Morganti E. (2006) Räumliche Ballung und Betriebsgruppen:neue Beweise aus italienischen Industriegebieten, Regional Studies 40, 507–518. Dieser Aufsatz stellt einen ersten Versuch dar, die Beziehung zwischen räumlicher Ballung und den organisatorischen Strukturen von Firmen zu analysieren. Er macht sich eine neue und umfassende Datenreihe auf Firmen- und Betriebsgruppenebene zu Nutze, die gestattet, die Unterschiede im Vorhandenseins und Eigenschaften von Betriebsgruppen zwischen Distrikten und nicht-Distrikten-angehö rigen Gebieten zu analysieren. Insgesamt bestätigen die Ergebnisse die Hypothese, dass räumliche Ballung von geschäftlichen Unternehmen die Organisation von Firmen beeinflußt: Gruppen sind in Industriegebieten weiter verbreitet als in nicht industriell geprägten Gebieten;darüber hinaus sind Gruppen in Industriegebieten weniger differenziert und räumlich stärker konzentriert als Gruppen ausserhalb der Industriegebiete Betriebsgruppen, Industriegebiete, räumliche Ballung, Organisationsformen von Firmen Cainelli G., Iacobucci D. y Morganti E. (2006) Aglomeración espacial y grupos comerciales: nuevo ejemplo de zonas industriales en Italia, Regional Studies 40, 507–518. En este ensayo pretendemos analizar por primera vez la relación entre la aglomeración espacial y las estructuras organizativas de las empresas. Con ayuda de un nuevo y exhaustivo grupo de datos sobre empresas y negocios, analizamos qué diferencias existen en cuanto a la presencia y las características de grupos comerciales en zonas industriales comparado con otras áreas no industriales. En general los resultados confirman la hipó tesis de que la organización de las empresas se ve influenciada por la aglomeración espacial de las actividades comerciales. Se observa que son más comunes los grupos en zonas industriales que en áreas no industriales. Además, los grupos en zonas industriales están menos diversificados y espacialmente más concentrados que los grupos de otras áreas no industriales. Grupos comerciales, Zonas industriales, Aglomeración espacial, Formas organizativas de empresas

The Role of Agglomeration and Technology in Shaping Firm Strategy and Organization

Over the last few years a growing number of contributions have shown that the presence of business groups, i.e., sets of firms legally distinct but belonging to the same owner(s), is significant. From a theoretical point of view, this presence poses the question of whether the group or the single legal unit should be considered as the elementary unit in economic analysis: i.e., what is generally meant in microeconomic theory by firm. In this paper we consider the group as the appropriate unit to delimit the firm's boundary, i.e., as the observed organizational form adopted by firms when they grow in size. Starting from this hypothesis, the main aim of this paper is to analyse the role of structural variables, such as spatial agglomeration and technology, in determining some features of business groups' strategy and organization. Specifically, the analysis concerns the presence and organizational specificity of business groups based on their membership of industrial districts (as a proxy for spatial agglomeration) and to the role of spatial agglomeration and technology in vertical integration strategies. To conduct the analysis, we take advantage of a new and large data-set at firm and business group level, recently developed by ISTAT (the Italian National Statistical Institute). The data-set, referring to 2001, covers all manufacturing firms organized as joint-stock companies.