Business Group Membership Research Articles

Determinants of Irish potato (Solanum tuberosum) commercialization and market participation by farmers in Nyandarua County, Kenya

Agricultural commercialization has been promoted as a pathway for enhancing household welfare in developing countries. This paper assesses the extent and determinants of commercialization among smallholder potato farming households in Nyandarua County, Kenya. Data were collected through a survey of 388 potato-producing households and analysed using a crop commercialization index (calculated as a share of the value of produced potato that is marketed) and the Tobit regression model. The average commercialization index was 0.4, implying that only a smaller share of the produced potato is marketed. The extent of potato commercialization varied across gender, education level, productivity, size of potato plots, and farmers' knowledge of production and marketing. The findings also show that household characteristics (such as gender (being male), age, education of the household head, household income) and transaction costs (such as distance to the market) negatively influenced potato commercialization. Conversely, the scale of potato production, knowledge of potato production and marketing, participation in Farmer Field Business School (FFBS) and group membership were positively associated with potato commercialization. Based on the findings, interventions to strengthen women's empowerment and the institutional arrangements for collective action and extension are encouraged. • Agricultural commercialization is a pathway for enhancing household welfare. • Market participation is used as an index for measuring commercialization. • About 40% of produced potato is marketed, indicating medium level of commercialization. • Participation in Farmer Field Business School and collective action are important for commercialization.

위탁기업의 협력업체 지원이 위탁기업의 국제화에 미치는 영향에 대한 연구

Intensified global competition compels firms to focus on their core competencies and develop and secure additional competencies through supply chain cooperation. Among the various types of supply chain relations, subcontracting raises concerns about the asymmetric bargaining power between the subcontracting company and the subcontractors. This calls for a discussion on supply chain cooperation in subcontracting relations and its effect on business outcomes. This study analyzed the influence of voluntary support policies of buyer firms for their subcontractors on the level of buyers’ internationalization. Using a sample of 1,016 Korean manufacturing firms, we found that buyer’s management support for subcontractors, high proportion of cash settlement, and pursuit of long-term subcontracting relations raise the level of buyer’s internationalization. This implies that the policies that support subcontractors can create a virtuous cycle for better business outcomes for buyers. Additionally, the assessment of the moderating effect of business group membership of buyers revealed that buyers who are members of business groups experience less positive influence of subcontractor supporting policies on internationalization. Based on these results, academic and practical implications are presented, and future research directions are discussed.

Neither Parasite nor Paragon: Are Business Groups a Source of Competitive Power?

While profit persistence has been widely examined in the current literature, there have been no extensive studies on the link between business group membership and profit persistence on an emerging market. Using panel data econometric methods, this article examines the link between profit persistence and membership in a large industrialists' group, also known as the TUSIAD (Turkish Industrialists' and Businessmen's Foundation), in the Turkish manufacturing sector in the period 1990-2017. The findings show that the re- lative magnitude of profit persistence of firms with TUSIAD membership is higher than those without TUSIAD membership in the Turkish manufacturing sector.

The side effect of business group membership: How do business group isomorphic pressures affect organizational innovation in affiliated firms?

Literature suggests that business groups help affiliated firms overcome market failure, which is common in emerging economies, thus serving as a source of competitive advantage. This paper discusses how and when affiliated firms pay for these advantages. Specifically, we propose that affiliated firms, compared with stand-alone firms, bear unique institutional isomorphic pressures from business groups. Using information technology industry samples from the World Bank’s Enterprise Surveys, we find that affiliated firms underperform on organizational innovation more than stand-alone firms. In addition, we find that the main effect is strengthened when the business group size is large and the affiliated firm CEO’s industrial experience level is low. Moreover, the main effect is the strongest when an affiliated firm is embedded into a large business group the CEO of which has a low industrial experience level. Our findings contribute to a comprehensive understanding of the impact of business group membership.

Business groups, institutions, and firm performance

AbstractThe aim of this paper is twofold. First, we analyze whether firms affiliated to national and international business groups outperform independent firms. Second, we investigate whether any potential performance premium associated with national and international business group membership depends on the quality of sub-national, regional institutions. Using data on Italian and Spanish manufacturing firms, we find a short-run growth premium for international business group members—while not for national business group members—with respect to independent firms. We also find that the growth premium associated with international business group membership is detected in low-quality regional institutional environments only.

International diversification and performance in family firm: Exploring nonlinear relationships with the governance structure in an emerging economy

ABSTRACT In this study, we researched the relationship between international diversification and performance in family firms in an emerging economy. Likewise, from the perspective of the governance structure, we investigated non-linear relationships between business group membership, concentration of ownership as well as pyramid ownership with the performance of internationally diversified family firms. Considering a sample of 83 companies that have been listed on the Santiago de Chile Stock Exchange during the period between 2003 and 2013, we find an inverted U relationship between international diversification and performance; a U relationship between international diversification and performance in family firms; an inverted U relationship between the performance of internationalised family firms and affiliation to a business group; a U relationship between the performance of internationalised family firms and concentration of ownership; and a non-linear relationship in the inverted U form between the performance of internationalised family firms and high divergence between control and cash flow rights and U in the case of low divergence.

Investors’ Perception of Business Group Membership during An Economic Crisis: Evidence from the COVID-19 Pandemic

This paper examines how investors perceive business group membership in Korea during the COVID-19 pandemic. Evidence of a time-varying and heterogeneous value of affiliation emerges from stock price performance analysis. I find that investors discount business group affiliation during a market collapse, but are willing to pay a premium for affiliation during market recovery. Overall, this pattern is more pronounced for financially weak affiliates and large business groups. Results also show that business group membership alleviates investors’ concerns regarding financial flexibility highlighting the role of internal capital markets as a substitute to external finance.

Does Japanese Business Group Membership Improve Post-Merger Performance?

This study examines whether merger performance is different between member companies of a Japanese business group (keiretsu) and independent companies. The six largest keiretsu groups with a long history are the focus (Mitsubishi, Mitsui, Sumitomo, Fuyo, Sanwa, and Daiichi Kangyo). Using data on mergers between Japanese-listed companies for 1985–2014, this study investigates the role of keiretsu groups on post-merger performance including company stock price, number of employees, and research and development. The event study shows that the stock prices of acquirers react less positively to announcements for within-group mergers than for mergers between independent firms. In addition, acquirers of within-group mergers tend to increase the number of employees and average annual salary but decrease the ratio of research and development after mergers. Such reduced ratio of research and development is not observed for acquirers of other types of mergers. In addition, the targets of within-group mergers tend to have higher leverage than other targets. Our results indicate that within-group mergers do not seem to aim at enhancing economic performance of acquirers but rather at rescuing troubled targets and are, thus, perceived unfavorably by market participants.

The effects of ownership identity on corporate diversification strategy of Chinese companies in foreign markets

In this paper, we examine the impact of acquirer’s ownership identity on corporate diversification decisions of Chinese companies in their cross-border acquisitions. Few studies to date have looked at the effect of ownership on corporate decisions to diversify abroad, particularly in the emerging market context. We find that certain characteristics of acquirer’s ownership identity such as the government ownership, business group membership and being publicly traded will be negatively linked with industry diversification in international markets. Also, the effects of ownership identities are contingent upon the host country selection, and acquisitions into developed host countries are likely to be in unrelated industries. We observe that Chinese companies that buy in developed markets engage in global consolidation. These results support our arguments on domestic market protection strategies adopted by Chinese companies for mitigating competition from their developed market rivals.

Business Group Membership and IFRS Reporting: The Effect of Group Financing and Investing Incentives.

Many unlisted firms are part of large conglomerate groups. For these firms, decisions about reporting practices are expected to be made at the group level (Beuselinck et al. 2014). Consistent with this hypothesis, our results indicate that group membership increases the likelihood of IFRS adoption by UK unlisted firms. Further, the identity and incentives of the parent firm are important determinants of the adoption decision. More specifically, our results suggest that subsidiaries adopt IFRS as part of their group’s strategy to improve the monitoring and optimise the financing and investing activities across the group, as portrayed by a subsequent increase in the investment efficiency at the subsidiary level and an increase in the probability of future debt issuance at the group level.

The intra business group effects of alliance network extensions

Purpose– The purpose of this paper is to better understand the influence of business group membership by exploring how actions by a member firm influence other firms in the business group. Specifically, the authors ask two questions in this study: when a member firm forms strategic alliances with partners outside of the business group, how does the alliance influence other members in the business group? Moreover, which types of member firms are more affected than others?Design/methodology/approach– The authors employ standard event-study methodology to examine the stock price responses for the focal and member firms on the announcement of an alliance. Moreover, the authors employ the cross-sectional regression analyses to test hypotheses concerning the impact of alliance, group, and firm characteristics on the cumulative abnormal returns of non-announcing members. All regressions are estimated using ordinary least squares.Findings– The results show that, on average, alliance-announcing member firms experience significantly positive share price responses to announcements of strategic alliances. Moreover, the impact of alliance formation spillover to other non-announcing members in the business group. The authors also find that the influences on the non-announcing members are dissimilar. The non-announcing members are more strongly affected when they are in different industries from the non-member partner, and when the ownership of the business group is more concentrated.Originality/value– This study is to extend the resource complementarities perspective, which may help firms to more effectively configure their network portfolios in order to develop synergies among related network resources. The study thus extends the alliance portfolio literature to the literature on business groups. Since the inter-firm networks within business groups are more complex than those in alliance portfolios, the authors are able to study how the structure of a business, such as ownership concentration, can influence the intra-network effect.

Do innovative emerging market cross-border acquirers create more shareholder value? Evidence from India

This study attempts to investigate the role of absorptive capacity of emerging market firms in creating shareholder value from developed market acquisitions. It analyzes the cumulative abnormal return of cross border acquisitions of listed Indian firms in Europe focusing on acquirers’ research intensity. The study discovers a U-shaped relationship between research intensity of Indian acquirers and their cumulative abnormal return following acquisitions in Europe. As such, firms with no research capacity can benefit from the acquisition by accessing advanced targets, although firms with extensive research capacity outperform any of their Indian competitors as these firms have the absorptive capacity to not only exploit but also explore the knowledge base of the acquired target. Furthermore, we found a positive effect of the acquisition of a high-tech target company, regardless of the absorptive capacity of the acquirer. We also found that business group membership has a positive impact on shareholder value, although horizontal acquisitions as compared to vertical and unrelated deals have a significantly negative impact for these companies. This result is again linked to the more explorative nature of vertical and unrelated acquisitions in comparison with horizontal deals that are more based on the exploitation of existing resources and capabilities.

Family ownership and R&D investment: The role of growth opportunities and business group membership

This study examines whether the influence of family ownership on R&D investment varies depending on growth opportunities and business group membership. Using data on Korean firms over ten years (1998-2007), the study shows that family ownership is negatively related to R&D investment, but the relationship becomes positive when growth opportunities are present. The moderating effect, however, differs between independent family firms and family business groups. The positive influence that growth opportunities have on promoting R&D investment is diminished for affiliates of family business groups. These findings imply that family owners invest more in R&D when their family control goals are threatened by the loss of growth potential. The empirical results of this study and its behavioral decision-making model help to bridge the gap between the predictions of the family control perspective and agency theory in explaining R&D investment by family firms in an emerging economy.

Antecedents of firm performance in emerging economies: Business groups, strategy, industry structure, and state support

A rich literature has investigated the antecedents of firm performance in developed economies, resulting in a consensus view that firm resources and strategy are the key determinants. Several arguments, however, suggest that in emerging economies other factors are more important for firm performance. This study analyzes the impact of firm strategy and industry structure as well as business group membership and state support on firm performance in an advanced emerging economy, Turkey. Using a data set compiled from a selection of the 1000 largest manufacturing firms in this country, the study employs several regression models to identify the main determinants of firm performance as measured by productivity and net profit margin. In contrast to studies of developed economies, the investigation finds that firm-related factors (competitive strategies) do not significantly influence performance; instead factors related to industry structure and business group membership are the strongest determinants of firm performance; further, state support interacts with business group membership and is positively related to productivity.

Do Foreign Investments Benefit Business Group Affiliated Firms? Empirical Evidence from India

Business groups are the prevalent governance form in emerging markets. Since diversified business groups frequently act as a substitute for missing institutions in less developed countries, a general consensus among institutional economists exists that group affiliation is beneficial to firms in the home market. It is yet unclear, however, whether firms can translate benefits derived from group membership to the international context. This research investigates whether or not it is advantageous for multinational enterprises to be part of a business group. Specifically, this study examines globalization strategies of group affiliated firms such as their mode of entry selection and their foreign location choice. Using hierarchical linear modeling on a sample of 197 Indian firms which are part of 96 business groups, we find that business group membership is generally harmful to multinational activity. However, if increasing globalization and market liberalization was to drive affiliated firms into international marketplaces, then they should at best invest in developed markets via partially-owned establishments.

Cash holdings and business group membership

This study examines the cash policies of business group members (i.e., affiliates). Using a panel dataset of private Belgian affiliates and comparable non-affiliated firms, the empirical results show that business group affiliates hold significantly smaller amounts of cash as compared to non-affiliated firms. This finding is consistent with the notion that affiliates can afford to keep lower cash reserves because these firms can access the internal capital market of the group. The analysis also combines affiliate level and group level data to evaluate cash drivers and shows that groups in financial distress reduce cash holdings in affiliates. However, affiliates that are more important for the group's reputation and operations maintain cash levels comparable to affiliates belonging to financially healthy groups.

Institutional Reforms and Foreign Market Entry of Emerging Market Firms: An Extended Firm-Specific Framework

The effects of corporate ownership reform in emerging economies on firms’ internationalization behavior remain understudied. By systematically linking reform outcomes to firms’ resources and attributes, we develop an extended theoretical lens by incorporating the FSA framework and insights from the organizational ambiguity literature to evaluate their rate of foreign market entry. We find support for our model through a balanced panel study of Chinese listed firms from 2002-2009. Our findings indicate that different forms of reformed shareholding result in varying effects on firms’ proclivity for outward FDI, reflecting the organizational diversity of such shareholders which experienced heterogeneous reform treatments. We also find evidence of complementarities and incompatibilities between ownership-based FSAs and other firm organizational characteristics including top management international experience and business group membership. The findings were robust across 6,653 firm year observations covering eight years.

The influence of public support on innovation and technological complexity on cooperative R&D agreements: the Spanish case

This paper proposes a model that relates public funding, company size, technological intensity, permanent R&D, business group membership and corporate strategy to the likelihood that firms will cooperate in R&D. To test the validity of the model, we built a database of Spanish manufacturing firms with innovation activities based on the ‘Survey on Technological Innovation of Enterprises 2000’, conducted by the National Statistics Institute (INE) of Spain. The test showed that all variables have a positive effect on the likelihood of R&D cooperation, but medium-sized enterprises and enterprise groups that belong to the EU and outside of the EU showed no significant influence on the probability of cooperation.

Business Groups and Contract Enforcement

This paper analyses the impact of business group membership on a firm’s economic performance when operating in a suboptimal legal environment. The data set includes firm level information for over 10,000 of the largest domestic companies in India from 1998 to 2008. The specific null hypothesis is that Indian firms in business groups have a larger market share compared to stand-alone firms in industries where relationship-specific inputs are used extensively, especially in Indian states with poorly functioning legal institution, which is measured by slowing processing of legal cases at the state level. Business groups, a collection of semi-independent firms acting in concert, are very prevalent in developing countries. This paper sheds light on how these firms perform relative to stand-alone firms in industries that require relationship-specific contracts, in a poor legal environment. The identification strategy takes advantage of the extensive legal reforms undertaken by the Government of India in the 2002 Amendment Act. Some states previously passed reforms that were similar to those contained in the subsequent national law. State legislation was superseded by the national law, after the passage of the 2002 reforms. A difference-in-difference approach is used to isolate the impact of group membership in Indian states that did not pass reforms prior to the 2002 Amendment Act. The empirical results suggest that membership in a business group helped firm performance in industries that require intensive contract enforcement. Business groups may help firms overcome market imperfections associated with a poor legal environment.

Family Business Groups Around the World: Costs and Benefits of Pyramids

Using a comprehensive dataset of 28,039 firms in 45 countries, this study investigates the motivations for family-controlled business groups, focusing on the question of how such groups are able to attract minority shareholders and allay their concerns about being expropriated. We argue that minority shareholders co-invest with group controlling owners because group structures play critical roles in financing projects that might not be otherwise funded by external investments, especially in underdeveloped capital markets. Our analysis offers support for this argument and provides new insight into how the balance of costs and benefits of group affiliation varies both within the pyramidal structure of a group and across investment environments. At the country level, we find that restricted access to external capital is associated with a greater prevalence of family business groups. Within individual groups, we find evidence consistent with funding advantages that pyramid structures offer: among group members, firms at the bottom of a pyramid receive the greatest internal capital support. In particular, internal equity funding, investment intensity, and firm performance all increase down a pyramidal chain. Comparing group affiliates and independent firms, we find that the former is associated with a valuation discount, which is consistent with evidence from prior studies. However, controlling for endogeneity in group affiliation shows that certain firm types benefit from business group membership. Overall, our results highlight that in addition to the well-documented control motivations behind pyramidal groups, these structures also provide important funding and certification support to members firms.