The postentry performance of business groups’ new venture affiliates

Abstract

Using resource dependence theory, this study examines the determinants of firm performance among business groups’ new venture affiliates using a sample of 1512 new venture affiliates associated with 104 large-sized business groups in Taiwan. The empirical findings reveal that improved affiliate postentry performance is linked to the relative size of a business group’s new venture affiliate and the level of autonomy inherent in decision-making. Furthermore, when the product market of a new venture affiliate is resource-related to its affiliated business group’s main business, this affiliate may benefit from resource relatedness with an improved return on equity.

JEL Classification: M10, M16, M38

Keywords

Business group affiliate new venture postentry performance resource dependence

1. Introduction

A business group is “a set of legally separate firms bound together in persistent formal and/or informal ways” (Granovetter, 2005: 429) and consists of “a set of legally distinct entities under the control of a large corporate owner” (Locorotondo et al., 2014: 317). In many emerging markets, the formation of business groups is often associated with a cross-holding through a pyramid ownership structure (Almeida and Wolfenzon, 2006; Chang, 2003; Claessens et al., 2000). Thus, business group affiliates often have common controlling shareholders. Controlling shareholders control business group affiliates by holding their shares directly or indirectly and are usually members of the business group’s core decision-making team. Since business group affiliates operate in various industries, they are often highly diversified. A typical diversification strategy involves establishing a new company that provides new products or enters new geographic markets (Cainelli and Iacobucci, 2011; Guillén, 2000).

However, diversification can act as a double-edged sword because the effect of corporate diversification on firm performance is inconclusive (Hall, 1995). Diversification may increase firm value (Choe et al., 2014; Hamilton and Shergill, 1993), but it may also undermine firm profitability because the action of entering a new market or setting up a new subsidiary can also expose the resources of the parent company to a certain amount of risk if inappropriate capital allocation decisions are made (Amit and Livant, 1988; Chang and Thomas, 1989). Furthermore, different types of diversification—related or unrelated—can affect firm performance in a variety of ways (Patrisia and Dastgir, 2017; Sakhartov, 2017). Therefore, the quality of the diversification decision upon entering a new business field will affect firm performance (Campbell et al., 1995; Porter, 1987). It is therefore deserving of further study.

Prior research on diversification has addressed issues including the impact of capital structure on ex-post venture creation (Hechavarría et al., 2016), international diversification for the ex-post and ex-ante benefits over policy change on investment portfolios (Watson and Dickinson, 1981), and survival after innovation (Arrighetti and Vivarelli, 1999; Cefis and Marsili, 2006; Colombelli et al., 2016; Dwyer and Mellor, 1993; Rehman, 2016). We extend this research by investigating the ex-post performance of business groups’ new venture affiliates based on resource dependence theory (RDT) (Casciaro and Piskorski, 2005; Drees and Heugens, 2013; Pfeffer and Salancik, 1978). Accordingly, we explore the determinants of postentry performance from the perspective of the relative power and dependence of a business group on its new venture affiliates. In view of the frequent entry and exit of large-sized diversified business groups, discussion regarding the postentry performance of these business groups’ new venture affiliates is lacking (Guillén, 2000; Hoskisson et al., 2005; Yiu et al., 2005); this study aims to fill this void.

Within a business group, there exists a dependent relationship between business group affiliates and a business group’s core entity (a core company or controlling shareholders of a business group). New venture affiliates in particular are dependent on the tangible and intangible resources supplied by an associated business group for development and growth. Meanwhile, to ensure consistency with the overall development of a business group, the core entity in a business group or the members of a business group’s core decision-making team may also exert a certain level of control of the business group affiliates (Cainelli and Iacobucci, 2011; Chung and Chan, 2012; Khanna and Rivkin, 2006; Luo and Chung, 2005).

In other words, the dependent relationship between business group affiliates and the core entity of their affiliated business group may be positively associated with a new venture affiliate’s development due to the synergy arising from resource sharing within a business group. However, it may also be negatively associated with a new venture affiliate’s development due to control from its associated business group. This study extends the RDT logic on diversification and examines relevant hypotheses in order to arrive at a better understanding of the postentry performance of large-sized business groups’ new venture affiliates in an emerging market.

This study makes the following key contributions to the literature and business practitioners. First, there are few empirical studies on a firm’s postentry performance (Kim et al., 2015; Sharma, 1998; Sharma and Kesner, 1996). This study provides evidence on postentry performance of new ventures. It is difficult to collect information about new ventures mostly due to data unavailability of unlisted companies. Data from the directory of Business Groups in Taiwan published by the China Credit Information Service (CCIS) Company is available from the annual survey on large-sized Business Groups in Taiwan, which covers listed and unlisted business group affiliates. Thus, this study is able to collect and examine sufficient empirical data to examine the performance of business groups’ new venture affiliates.

Second, this study provides evidence to describe the growth strategy of business groups from the perspective of their new venture affiliates on the postentry performance of these affiliates. That is, this study elaborates on the RDT logic with the arguments of Gibrat’s Law to validate the role of entry size on firm performance (Becchetti and Trovato, 2002; Mundt et al., 2016). The findings of the present study pave the way for further studies that will collectively enrich related debates.

Third, this study includes arguments of human capital to seek empirical evidence on whether resource relatedness and autonomy in decision-making affect firm performance using direct and interacting perspectives. In particular, less attention has been paid to the impact of board independence from the perspective of affiliated units on the performance of these affiliated units. Thus, this study fills this gap by examining the relationship between business affiliates’ autonomy in decision-making and their performance. Although the present study focuses on Business Groups in Taiwan, the findings of this study can be applied to businesses in the multidivisional form (M-form), which is popularly used by firms in developed countries, such as firms in Australia (Chenhall, 1979), as the M-form typically resembles the form of business groups (Chu, 2001).

2. Literature and hypotheses

2.1. RDT and business groups

RDT argues that it is inevitable for an organization to depend on external environments. In order to survive, an organization has to acquire resources. Due to the need for resources, an organization may form dependent relationships with other organizations that supply the necessary resources; however, these relationships have an inherent degree of uncertainty. Consequently, an organization may seek to raise control over external environments to reduce dependence and uncertainty (Casciaro and Piskorski, 2005; Drees and Heugens, 2013; Pfeffer and Salancik, 1978).

Since a business group is a specific collection of inter-organizational relationships, business group affiliates jointly pursue the business group’s survival and development under unified command management. Each business group affiliate has its own differential value and competency to cope with a business group’s critical problems from external environments. According to RDT, the inter-organizational relationships within a business group are interdependent, so these affiliates in the same business group may gain access to or acquire valuable resources from each other. One affiliate may be more dependent on the business group than others due to crucial resources within the business group. In other words, an affiliate that is in search of such critical and rare resources will be more dependent on the business group than an affiliate that actually possesses these resources. Thus, some business group affiliates achieve power within the business group—power that is typically exercised over other business group affiliates that are dependent on the resources in question (Johnston and Menguc, 2007; Mudambi et al., 2014; Pfeffer, 1992).

2.2. Entry size and postentry performance

Establishing new venture affiliates is an important means for a business group to expand to various products or markets. Although the core entity of a business group has substantial control over its affiliates during the new venture, the features of each new venture affiliate may vary depending on strategy, expectation, and ambition of the core entity of the business group. Therefore, each new venture affiliate has unequal strategic power within a business group. Strategic power refers to power related to the strategic direction of the business group (Mudambi et al., 2014). We apply the reasoning of RDT to the relative size between new venture affiliates and a business group. That is, when a business group decides to launch a new venture, entry size is an important factor to consider. Large-scale entry involves a significant investment of resources and is often accompanied by irreversible costs. This also suggests that the entry should be timely, which proclaims the strategic commitment of the business group (Ghemawat and Caves, 1986; Wood et al., 2011). Thus, the size of new venture affiliates increases with investment risk (Amit and Livant, 1988; Chang, 1996; Chang and Thomas, 1989). However, a large-scale entry can quickly achieve economies of scale, build brand loyalty, and establish better distribution channels. That is, a large-scale firm is more likely to enjoy first-mover advantages, which should increase the chances of success for the new venture affiliate (Pan et al., 1999).

The relationship between entry size and firm performance has been examined from various perspectives. Examining Fortune 500 companies during 1980–1982, Sharma and Kesner (1996) empirically find that the scale of market entry has a significant positive impact on performance. Luo (1997) examines 127 foreign firms in China and observes that the larger the scale of the subsidiary, the better the performance.

Firm performance can be assessed in a variety of ways. In terms of firm’s growth, Gibrat’s Law argues that the growth rate of a firm is independent of its size (Becchetti and Trovato, 2002; Mundt et al., 2016). Evidence regarding the impact of firm’s size on firm’s growth has provided conflicting evidence, with the majority of empirical studies indicating that size is associated with firm’s growth (Audretsch et al., 1999; Becchetti and Trovato, 2002; Perényi and Yukhanaev, 2016), which rejects Gibrat’s Law. Regarding firm’s survival, “entry appears to be relatively easy, but survival is not” (Geroski, 1995: 435). The impact of entry size on firm’s performance as pertaining to survival can be described by the size-survival relationship. Prior research has demonstrated the positive relationship between firm’s size and firm’s survival (Agarwal and Audretsch, 2001; Quatraro and Vivarelli, 2015; Yasuda, 2005). Therefore, size is a driver of a firm’s postentry survival (Audretsch and Mahmood, 1995; Mata et al., 1995) and large-scale entry can facilitate new firm creation (Shane, 2001).

However, significantly less attention has been paid to the role of financial performance in this regard (Kim et al., 2004; Porter, 1987; Sharma, 1998; Sharma and Kesner, 1996); thus, this study examines a firm’s financial performance from a postentry perspective. Recall that a large-scale entry is more likely to achieve economies of scale, build brand loyalty, and establish better distribution channels, which may directly or indirectly reduce costs. Furthermore, when a business group decides to form a new venture affiliate, the scale of the affiliate relative to the affiliated business group can reveal the degree of importance of the affiliate to the business group and the business group’s level of commitment of resources (Mudambi et al., 2014). Meanwhile, the entire business group’s reputation, which can be regarded as the overall estimation by “its stakeholders expressed by the demonstrative behaviors to its customers, employees, investors, business partners, and general public” (Ghosh, 2017: 545), is more likely to affect affiliates on a relatively larger scale.

In particular, in emerging economies, a new venture affiliate depends on the brand of the business group when this affiliate interacts with suppliers, customers, competitors, and other stakeholders (Khanna and Yafeh, 2007; Kim et al., 2004). A large-scale entry is typically equipped with sufficient resources, and thus, its strategic power is relatively high regarding the inter-organizational relationships within a business group. Therefore, considering the advantages of cost and size in market entry, and the strategic power to the business group, a large-scale new venture affiliate is more likely to perform better financially. This leads to the following hypothesis:

Hypothesis 1: An affiliate has higher firm performance after entering the market when the business group’s new venture affiliate is larger in relative size.

2.3. Resource relatedness and postentry performance

Entrepreneurs and firms in emerging economies are motivated to pursue diversification and form business groups to acquire and maintain the capability of consolidating resources for the next entry (Guillén, 2000). In other words, a business group operates its main business and can additionally create a new venture. Creation of a new venture can be achieved via inter-industry and intra-industry diversification. Inter-industry diversification occurs when a business group pursues a growth opportunity beyond the main business, while intra-industry diversification occurs when a business group diversifies into different market niches within the same industry (Li and Greenwood, 2004; Rumelt, 1986). Li and Greenwood (2004) argue that intra-industry diversification can enhance a firm’s competitive advantage through synergies arising from economies of scope, premiums from mutual forbearance enabled by multi-market competition, and efficiencies derived from market structuration.

Theoretically, the resource-based view (RBV) focuses on the uniqueness and value of resources from internal organizations, and the RDT focuses on the access and control of resources from external organizations. Medcof (2001) suggests that the RBV and RDT theoretically complement each other because of the nearly identical meanings of certain fundamental concepts. Particularly, the more valuable the resources are, the more the firm depends upon them.

Regardless of inter- or intra-industry diversification, “diversified firms are more likely to combine more-related businesses because relatedness enables sharing of resources between businesses” (Sakhartov, 2017: 1), and shared resources can enhance firm performance (Li et al., 2015). A new venture affiliate has to acquire three types of resources: (1) inputs such as labor, capital, and raw materials; (2) process-related knowledge, including technology and operational know-how; and (3) markets, including distribution channels and contracts with customers (Guillén, 2000; Markides and Williamson, 1996). The RBV suggests that to take full advantage of the underutilized resources within an organization (e.g. excess capacity and capital, idle workers, under-challenged engineers, systems, and infrastructure) (Mahoney and Pandian, 1992; Penrose, 1959), a firm tends to diversify over time, and diversification can establish dynamic capabilities (George and Kabir, 2012).

As the resources of a firm become more specialized, diversification is required to maintain growth or take advantage of underutilized resources (Penrose, 1959). Furthermore, through the routinization of diversification, the growth of a firm over time creates a unique set of productive resources and specialized knowledge. Such proprietary resources and knowledge within the firm are much more valuable than if they are publicly tradable in the open market. Any firm that aims to sustain its competitive advantage must protect these proprietary resources and knowledge (Brush, 1996; Penrose, 1959).

The above reasoning can also be applied to a new business with resource relatedness within a business group, whereby a new business can be guided by the capabilities of its affiliated business group, especially during the early stages of the new venture. For example, skilled labor and resources can be reallocated from other related businesses within a business group. Also, a business group’s headquarters can provide administrative and support services, such as accounting, legal advice, and information technology, and its already established reputation, political and business connections, and networks (Chandler, 1990; Guillén, 2000; Khanna and Palepu, 2000; Khanna and Yafeh, 2007). These factors are all important in creating a competitive advantage for a business group affiliate. As the business group affiliate is equipped with resources related to the main business of a business group, this affiliate can also benefit from existing advantages from a business group, which should contribute to the development of the business group affiliate. These advantages include the use of common distribution channels, joint advertising, the sharing of marketing and technology-related information, transferring skills between different affiliates, and sharing the use of manufacturing equipment between affiliates to obtain economic benefits regarding the maximization of production capacity (Kim et al., 2015; Sambharya and Banerji, 2006). Thus, following the RDT logic, when a business group’s new venture affiliate is highly resource related to the main business of a business group, it is more likely to acquire more crucial resources to gain a competitive advantage for better postentry performance. Accordingly, we test the following hypothesis:

Hypothesis 2: An affiliate has higher firm performance after entering the market when the product market of a business group’s new venture affiliate is resource-related to the business group’s main business.

2.4. Autonomy in decision-making and postentry performance

Prior research attempting to analyze issues concerning corporate autonomy largely focuses on board independence and firm performance from the perspective of the core company. Previous studies have identified that board independence can contribute to superior firm performance (Bird et al., 2018; Singhchawla et al., 2011), and that independent outside directors can positively affect firm performance (Bonn, 2004). There is a lack of research examining board independence from the perspective of affiliated units and its impact on the performance of these affiliated units. This study aims to fill this gap by examining the relationship between business affiliates’ autonomy regarding decision-making and performance.

The core company is often the center of a business group and typically has a pyramid ownership structure. Such a core company usually has a long history, or it is sufficiently large enough to affect the survival, direction of operation, and other characteristics of the business group (Chung and Chan, 2012; Luo and Chung, 2005). When it comes to issuing commands or having the authority to manage and supervise, the decision-making team of the core company has more power than any other group affiliates. The members of the decision-making team can exercise control on a group affiliate by holding major shares, or can further influence a group affiliate’s long-term development by serving as the CEO or board chair.

According to RDT, organizations engaging in different kinds of inter-organizational arrangements, such as board interlocks, alliances, joint ventures, and mergers and acquisitions (Pfeffer and Salancik, 1978), intend to increase their autonomy to make decisions without outside interference (Oliver, 1991). In other words, organizations actively attempt to increase their internalization advantage, which should reduce the risk from outside interference (Shi et al., 2010). However, an inherent asymmetrical power relationship exists between a core company and a business group affiliate (Mudambi et al., 2014). Practically, business group affiliates are more likely to unitarily depend on a core company, which renders the autonomy of a business group affiliate’s decision-making lower than that of a non-business group affiliate. There is a wealth of research concerning a subsidiary’s autonomy in terms of the headquarters-subsidiary relationship in multinational companies (Birkinshaw and Hood, 1998; Garnier, 1982; Paterson and Brock, 2002; Young and Tavares, 2004), which concerns the efficiency and flexibility of the subsidiary when operating within its own market (Birkinshaw and Hood, 1998; Garnier, 1982). This same concept can also be applied to the relationship between a core company and a business group affiliate.

Birkinshaw (1997) further argues that subsidiaries can also be directed to generate new ideas, pursue new business opportunities, and create special advantages in the product market that can benefit the whole company (including headquarters and other entities). In other words, the subsidiary no longer acts as a dependent unit of the parent company, but changes its role from a receptive subsidiary to an autonomous subsidiary or even an active subsidiary (Taggart, 1998). Accordingly, the parent company should adjust its control and coordination mechanism and grant the subsidiary more autonomy.

Therefore, this study suggests that if the key decision makers of a business group affiliate are also members of the decision-making team of the core company of the business group, the level of autonomy in the decision-making of the business group affiliate will be low, with less authority to refute or challenge the core company. A low level of autonomy in this regard can negatively impact decision quality. Moreover, the business group affiliates will not be motivated to actively and spontaneously seek strategies for better performance (Sengul and Gimeno, 2013). Thus, we argue that in a multi-unit company (e.g. a business group), the performance of a new venture should increase with its autonomy. Accordingly, we test the following hypothesis:

Hypothesis 3: The higher a business group’s new venture affiliate’s autonomy in decision-making, the better the affiliate’s performance after entering the market.

2.5. The moderating effect of autonomy in decision-making

For the present study, autonomy in decision-making refers to the influence of the members of the business group’s core decision-making team on the business group’s new venture affiliate. As the members of the business group’s core decision-making team are often professionals with related knowledge, skills, and experience, such credentials are conducive to the early development of a new venture affiliate with resources related to the business group’s main business. This study further examines the moderating effect of autonomy in decision-making on the relationship between resource relatedness and postentry performance.

Since the features of each business group affiliate and the environment in which it operates are not identical, this “heterogeneity” and environmental uncertainties may coerce the core company to grant the business group affiliate more authority to permit timely responses to environmental uncertainties (Garnier, 1982; Pfeffer and Salancik, 1978). Moreover, differentiation and specialization in a firm may affect decision-making regarding the launch of a new venture. A high level of tacit knowledge relevant to marketing or technical know-how within a new venture is likely to be associated with the internalization approach (Madhok, 1997), that is, a higher degree of integration.

Thus, in general, if the competitive advantage of a new venture is built on its technical capacities, the wholly owned entry model is usually preferred because a higher degree of integration can reduce the risk of losing control over its core competencies. Therefore, the more relevant the product market of a new venture affiliate is to the product market of the core company, the more likely the new venture affiliate will achieve better performance. Accordingly, there will be a positive effect of resource relatedness on postentry performance of the business group affiliate, and this effect is likely to be stronger when the key decision makers of a business group’s new venture affiliate also serve as members of the core decision-making team of the business group. Thus, we test the following hypothesis:

Hypothesis 4: The autonomy in decision-making of a business group’s new venture affiliate weakens the positive relationship between resource relatedness and the affiliate’s postentry performance.

3. Methods

3.1. Sample and data

This study focuses on the business group affiliates of large-sized Business Groups in Taiwan. Taiwan plays a key role in global business due to large-sized businesses in the electronics industry. In addition, detailed data are available for business groups and business group affiliates in Taiwan. Data covers the pre-crisis period between 2001 and 2007, which allows us to investigate the determinants of performance of business groups’ affiliates prior to the financial crisis. The business group affiliates examined in this study adhere to several criteria. First, they must have been established for less than 10 years, thus emphasizing new venture affiliates for empirical testing. Second, during this time period, the sampled affiliates must also be continuously listed on the Business Groups in Taiwan (BGT) directory published by the CCIS Company with no missing information. CCIS Company is the largest and most prestigious credit-checking agency in Taiwan and is an affiliate of the Standard & Poor agency of the United States. It is one of the most widely used and reliable data sources for academic research on Taiwanese firms (e.g. Claessens et al., 2000; Luo et al., 2009). A total of 1512 business groups’ new venture affiliates form the sample of this study. These business group affiliates are affiliated with 104 business groups, representing a total of 6242 firm-year observations over the period of 2001–2007.

3.2. Variables and measurement

3.2.1. Postentry performance

This study focuses on financial performance when analyzing postentry performance. Thus, postentry performance as the dependent variable is measured by the return on equity (ROE) and the return on sales (ROS). Postentry performance (ROE) measures a firm’s profitability by revealing how much profit a company generates with the money shareholders have invested. Postentry performance (ROS) details how much profit is produced per dollar of sales. Both postentry performance (ROE) and postentry performance (ROS) capture a business group affiliate’s future profitability and are frequently used in measuring firm performance.

3.2.2. Relative size

The relative size is the ratio of a business group affiliate’s total assets to an affiliated business group’s total assets. In this study, this ratio further implies the relative power of the focal new venture compared with other new ventures of the business group.

3.2.3. Resource relatedness

This is based on the standard industry classification (SIC) code of the business group affiliate. When comparing the three-digit industry code of the business group affiliate to the three-digit industry code of the core company of the business group, the following coding is used: 2 for highly related resources; 1 for related resources at a moderate level if two-digit industry codes are used and compared; and 0 otherwise. Thus, a higher value of this variable represents closer resource relatedness between the business group affiliate and the core company of the business group.

3.2.4. Autonomy in decision-making

Takes the value of 0 if the CEO or the board chair is also a member of the core decision-making team of the business group, and 1 otherwise. Thus, firms coded 0 have lower autonomy, while firms coded 1 enjoy higher autonomy.

3.2.5. Control variables

Following Choi and Cowing (2002), Luo and Chung (2005), Pham et al. (2011), and Yiu et al. (2005), this study controls for a number of variables, including group age, group size, family-controlled group, group affiliate’s age, capital structure, location, industry effect, and year effect. Group age and group affiliate’s age are measured as the logarithm of the number of years since establishment. Group size is measured as the logarithm of the number of employees. Capital structure is measured by the debts to total assets ratio on the affiliate’s level. Location is coded 1 for an overseas affiliate and 0 otherwise. Industry effect is measured by binary variables (1 for the focal industry; 0 for other industries) originating from the 2-digit SIC industry categories.

In addition, human capital may affect firm performance (Asoni and Sanandaji, 2016; Colombo and Grilli, 2010; Vivarelli, 2013). In the present study, we focus on human capital in family businesses. Since founding family members may have positive influences on their family firms’ financial performance (González et al., 2012), we thus control for the effect of family-controlled group. Furthermore, in a family business group, founding family members often have substantial influence on the decision-making and performance of affiliated firms, particularly in the Asian context (Chung and Chan, 2012). A business group is considered family-owned if it is managed and controlled by a specific family wherein more than two family members serve as board members or directors of a business group’s core company and the controlling shares of the family exceed the critical control level (Cubbin and Leech, 1983). If the affiliated business group is family-owned, this variable is coded 1; otherwise, it is coded 0.

3.3. Analysis

Random-effects pooled cross-sectional time-series regression methods are used in this study. This is due to the specifications of the models that have data with a large number of cross-sectional units (N), but a small number of times series data (T). Furthermore, some regressors do not vary within the affiliates, and our interest is mainly in the between-affiliate variance (Greene, 1997; Hussin and Saidin, 2012). Prior research raises concerns regarding a spurious ratio problem because this method can cause biased results (Mugoša, 2015; Zhu, 2012). That is, dependent and independent variables can be correlated with each other because of common or highly correlated denominators (e.g. assets and sales) (Chen, 2015; Powell et al., 2009; Zhu, 2012). In this study, we examine the relationship between entry size and postentry performance, which involves relative size, measured by the ratio of a business group affiliate’s total assets to an affiliated business group’s total assets for entry size, and ROS and ROE for postentry performance. We examine the correlation coefficients of divisors between entry size and firm performance and identify the following results: r = 0.087 between a business group’s total assets and the focal group affiliate’s sales (the divisor of ROS), and r = 0.14 between a business group’s total assets and the focal group affiliate’s equity (the divisor of ROE). Since the divisors of dependent and independent variables are not highly correlated, the potential spurious ratio problem should not exist in our model estimations.

4. Results

Table 1 presents the descriptive statistics and correlations of all variables included in this study. In total, 856 new venture affiliates belong to 64 family-controlled business groups, representing 56.6% of the total sampled affiliates and 62.1% of the total sampled business groups, respectively. This is consistent with the Taiwanese research setting in which family-controlled businesses are common (Chung and Chan, 2012; Luo and Chung, 2005; Luo et al., 2009). In order to identify potential multicollinearity problems, we examine the variance inflation factor (VIF) and condition index. The value of VIF of all independent variables does not exceed 2.29. Based on the results of correlations and VIF, multicollinearity does not appear to create a serious problem for our regression results.

Table 1.

Descriptive statistics and correlations.

Variables	Mean	SD	1	2	3	4	5	6	7	8	9	10
1. Postentry performance (ROE)	0.02	0.41
2. Postentry performance (ROS)	−0.02	0.31	.34**
3. Group age	3.36	0.55	.02	.03**
4. Group size	9.48	1.32	.07**	.06**	.19**
5. Family-controlled group	0.56	0.50	−.07**	−.03**	.39**	−.10**
6. Group affiliate’s age	1.52	0.58	.08**	.15**	.11**	.15**	.00
7. Capital structure	0.52	0.27	−.09**	.01	−.03*	.00	−.05**	−.08**
8. Location	0.64	0.48	.00	.00	−.13**	−.01	−.03**	−.05**	.11**
9. Relative size	2.40	6.17	.04**	.04**	−.17**	−.14**	.02	.05**	.05**	−.02
10. Resource relatedness	0.54	0.85	.02	−.02*	−.20**	−.12**	−.16**	−.02	.06**	.23**	.12**
11. Autonomy in decision-making	0.42	0.49	.03*	.04**	−.04**	−.04**	−.09**	.01	.00	.07**	−.08**	−.03*

SD: standard deviation; ROE: return on equity; ROS: return on sales.

This table presents averages and standard deviations for the variables employed in the regression analyses, and correlations between variables. Postentry performance (ROE) is the ratio of the net income after tax to shareholders’ equity. Postentry performance (ROS) is the ratio of the net income after tax to total sales. Group age is the logarithm of the age of the business group’s core company in years. Group size is the logarithm of the total number of employees of the group. Family-controlled group is a dummy variable: 1 denotes that an affiliated business group is controlled by a specific family; otherwise 0. Group affiliate’s age is the logarithm of the age of the new venture affiliate in years. Capital structure is the ratio of the total debts to total assets. Location is a dummy variable: 1 denotes that the new venture affiliate is located overseas; otherwise 0. Relative size is the ratio of the affiliate’s total assets to an affiliated business group’s total assets. Resource relatedness is a discrete scale constructed by comparing the three-digit industry code of the new venture affiliate to the three-digit industry code of the affiliated business group’s core business: 2 denotes that the new venture affiliate and the affiliated business group have the same three-digit industry code; 1 denotes that they have the same two-digit industry code but their three-digit industry codes are different, and 0 denotes that they have totally different three-digit industry codes. Autonomy in decision-making is a dummy variable: 0 denotes that the new venture affiliate’s CEO or board chair is also a member of the core decision-making team of the business group; otherwise 1.

and * denote significance at 5% and 10%, respectively.

Table 2 shows the regression results of new venture affiliates’ postentry performance. The dependent variable is ROE for Models 1– 3, and ROS for Models 4– 6. The Wald Chi-square values are significant for all models. Therefore, the model fitness and setting are deemed satisfactory. Models 1 and 4 are baseline models showing the estimated results when only the control variables are entered. The results show that group size has significant positive effects on both of the performance measures of a group affiliate after it enters the market. This indicates that the larger the business group to which the group affiliate belongs, the better the group affiliate performs. This means that large business groups are more likely to provide a variety of tangible or intangible resources to their affiliates, thus creating competitive advantages in the process. This result is consistent with the suggestions and empirical results of Guillén (2000), Khanna and Palepu (2000), Ramachandran et al. (2013), and Yiu et al. (2005). Moreover, the results also show that the group affiliate’s age has significant positive effects on both of the performance measures of a group affiliate after it enters the market. Since the sampled affiliates are less than 10 years old, this finding also implies that the longer the new venture affiliates survive, the more resilient these affiliates become and the better they perform. Moreover, the business group affiliates associated with the family-controlled group perform worse than those in the non-family-controlled group.

Table 2.

Regression results on the new venture affiliates’ postentry performance.

Variables	Postentry performance (ROE)			Postentry performance (ROS)
	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
Control variables
Group age	0.010 (0.020)	0.019 (0.020)	0.019 (0.020)	0.010 (0.012)	0.014 (0.012)	0.014 (0.012)
Group size	0.017** (0.006)	0.023** (0.006)	0.023** (0.006)	0.010* (0.004)	0.011** (0.004)	0.011** (0.004)
Family-controlled group	−0.067** (0.017)	−0.064** (0.017)	−0.065** (0.017)	−0.021^† (0.013)	−0.023^† (0.012)	−0.024* (0.012)
Group affiliate’s age	0.035** (0.013)	0.029* (0.013)	0.028* (0.013)	0.082** (0.013)	0.078** (0.013)	0.077** (0.013)
Capital structure	−0.200** (0.033)	−0.208** (0.033)	−0.209** (0.033)	0.020 (0.025)	0.016 (0.025)	0.015 (0.025)
Location	0.021 (0.016)	0.020 (0.016)	0.019 (0.016)	0.011 (0.014)	0.014 (0.014)	0.013 (0.014)
Independent variables
Relative size		0.006** (0.001)	0.006** (0.001)		0.003** (0.001)	0.003** (0.001)
Resource relatedness		0.021* (0.011)	0.031** (0.012)		−0.008 (0.007)	0.002 (0.008)
Autonomy in decision-making		0.015 (0.014)	0.027^† (0.017)		0.020* (0.010)	0.034** (0.011)
Resource relatedness × autonomy in decision-making			−0.024 (0.018)			−0.027* (0.012)
Constant	−0.136 (0.093)	−0.216 (0.096)	−0.216 (0.096)	−0.281 (0.079)	−0.304 (0.080)	−0.304 (0.080)
Overall R-squared	0.038	0.045	0.045	0.055	0.060	0.061
Wald chi-square	173.16**	206.46**	208.04**	294.34**	315.26**	320.83**
LM-test	340.70**	330.81**	330.64**	329.66**	317.35**	313.19**

ROE: return on equity; ROS: return on sales.

This table reports the results of regressions in which ROE and ROS are dependent variables for postentry performance. Regressions are performed on the 6242 firm-year observations from 1512 business groups’ new venture affiliates affiliated with 104 business groups. Postentry performance (ROE) is the ratio of the net income after tax to shareholders’ equity. Postentry performance (ROS) is the ratio of the net income after tax to total sales. Group age is the logarithm of the age of the business group’s core company in years. Group size is the logarithm of the total number of employees of the group. Family-controlled group is a dummy variable: 1 denotes that the affiliated business group is controlled by a specific family; otherwise 0. Group affiliate’s age is the logarithm of the age of the new venture affiliate in years. Capital structure is the ratio of the total debts to total assets. Location is a dummy variable: 1 denotes that the new venture affiliate is located overseas; otherwise 0. Relative size is the ratio of the affiliate’s total assets to an affiliated business group’s total assets. Resource relatedness is a discrete scale constructed by comparing the three-digit industry code of the new venture affiliate to the three-digit industry code of the affiliated business group’s core business: 2 denotes that the new venture affiliate and the affiliated business group have the same three-digit industry code; 1 denotes that they have the same two-digit industry code but the three-digit industry codes are different, and 0 denotes that they have totally different three-digit industry codes. Autonomy in decision-making is a dummy variable: 0 denotes that a new venture affiliate’s CEO or board chair is also a member of the core decision-making team of the business group; otherwise 1. All regressions control for year and industry effects. Coefficients of year and industry effects are omitted for readability. Standardized coefficients and robust standard errors in parentheses are reported. LM-test stands for Lagrangian Multiplier test.

, *, and ^† denote significance at 1%, 5%, and 10%, respectively.

Models 2 and 5 reveal the estimated results of the main effects. Models 3 and 6 show the results after adding the interaction item of resource relatedness multiplied by autonomy in decision-making. The results in all models show that the relative size of the group affiliate has a significant positive effect on postentry performance (p < 0.01 for postentry performance (ROE) and postentry performance (ROS)). This implies that the higher the relative power of new venture affiliates within a business group, the better the postentry performance, which supports Hypothesis 1.

However, resource relatedness can positively affect postentry performance (ROE) (p < 0.01), but has no significant effect on postentry performance (ROS). Thus, Hypothesis 2 is only partially supported. This finding implies that resource relatedness, which exists between the business group affiliates and the core company of the business group, can contribute to shareholder wealth, but not operating efficiency.

With regard to autonomy in decision-making, such autonomy of the business group affiliate has a significant positive effect on postentry performance (p < 0.1 for postentry performance (ROE) and p < 0.01 for postentry performance (ROS)). The results reveal that the business group affiliates perform better if the key decision maker of a business group affiliate (e.g. CEO or chairperson) is not a member of the core decision-making team of the business group. Therefore, this finding supports Hypothesis 3.

Finally, for the moderating effect of autonomy in decision-making on the relationship between resource relatedness and postentry performance, the interaction term of resource relatedness and autonomy in decision-making does not show significant effects on postentry performance (ROE) (Model 3), but reveals significant negative effects on postentry performance (ROS) (Model 6). The negative sign implies that the autonomy of decision-making (i.e. the key decision maker of the business group affiliate is not a member of the core decision-making team from the business group) can interact with resource relatedness of the business group affiliate to negatively affect postentry performance (ROS). However, since the main effect between resource relatedness and ROS is not significant, and the interaction effect of the autonomy of decision-making and resource relatedness has no significant impacts on postentry performance (ROE), Hypothesis 4 is not supported.

5. Discussion

Taking RDT as the main theoretical basis, this study examines the determinants of postentry performance of new venture affiliates of large-sized business groups in the emerging economy of Taiwan. The results from this study indicate that when the relative size of a group affiliate within a business group is larger, the group affiliate’s postentry performance is improved. Furthermore, when the product market of a new venture affiliate is resource-related to an affiliated business group’s main business, the group affiliate’s ROE significantly benefits from the resource relatedness. In terms of autonomy in decision-making of a group affiliate, when a group affiliate allows for more autonomy in decision-making, its postentry performance (ROE and ROS) improves. However, a group affiliate’s autonomy does not interact with resource relatedness to significantly relate to the postentry performance of the group affiliate. This study provides a better understanding of the postentry performance of a business group’s new venture affiliates in an emerging market derived from RDT logic. Detailed discussion of these empirical results follows.

In terms of the relationship between firm size and firm performance, with regard to the relative size of the new venture affiliate, a larger-sized company is more likely to enjoy the benefits of economies of scale, economics of learning, and a certain level of market power (Montgomery, 1985; Pan et al., 1999; Sharma and Kesner, 1996). For a business group that has many group affiliates, the size of a group affiliate defines the amount of resource endowment and profit that the business group affiliate is able to contribute, thus representing its relative strategic power to other group affiliates (Kim et al., 2004; Mudambi et al., 2014). Alternatively, it also symbolizes the level of commitment by the business group toward resources and long-term development (Ghemawat and Caves, 1986; Wood et al., 2011). Stakeholders (e.g. competitors, suppliers, customers, and employees) are likely to hold a business group in higher esteem based on the relative size of their business group affiliates. Conversely, the smaller the relative size of a group affiliate, the less obvious the impacts of the business group on the group affiliate. As Khanna and Palepu (1997) suggest, the reputation of a business group should rest on the quality of its products and services. The reputation of a business group affiliate can be used to enter a new market. Even if the original business of the business group is completely unrelated to the new market, it can still be effective.

Thus, the empirical results support RDT. When the relative size of a new venture affiliate is larger, this new venture affiliate holds more power than other affiliates. In the view of market competition, it reduces a new venture’s dependency on the external environment (Casciaro and Piskorski, 2005; Drees and Heugens, 2013; Pfeffer and Salancik, 1978) and is helpful for establishing the market power of the new venture. From the perspective of those inside a business group, the relatively larger size of a new venture affiliate can reduce the power asymmetry between the affiliate and the business group, and increase interdependence (Casciaro and Piskorski, 2005; Johnston and Menguc, 2007; Mudambi et al., 2014; Pfeffer, 1992). Hence, it can help the new venture affiliate exercise a dominant position among business groups in emerging economies and facilitate competitive advantages.

This study also explores the relationship between resource relatedness and firm performance, with regard to the resource relatedness of a group affiliate. According to the RBV and RDT, when a business group’s new venture affiliate is highly resource related to the main business of a business group, it is likely to gain a competitive advantage and better postentry performance since it can acquire more crucial resources from related affiliates within a business group (Kim et al., 2015; Li and Greenwood, 2004; Sambharya and Banerji, 2006). However, the results of this study show that a new venture affiliate entering an industry related to the main business of the business group can significantly improve ROE, but not ROS. This finding implies that new venture affiliates can create higher shareholder value if these affiliates have closer resource relatedness with the main business of the business group; however, closer resource relatedness does not necessarily improve the operational efficiency of the affiliates. This may be due to market imperfection in strategic factors in emerging markets (Barney, 1991; Peng, 2003). Compared to the core competence of a business group’s main business, a business group’s general organizational capability of internalization can also effectively assist business group affiliates in exploring unrelated market opportunities (Chandler, 1990; Guillén, 2000; Yiu et al., 2005); these opportunities include accounting, legal advice, information technology, established reputation, political and business connections, and networks (Khanna and Rivkin, 2006; Ramachandran et al., 2013). Thus, the relationship between resource relatedness and ROS is weak.

Finally, in terms of the impact of autonomy regarding decision-making on firm performance, here the decision-making autonomy of a group affiliate is determined based on whether or not the CEO or chair of the group affiliate is also a member of the core decision-making team of the business group. If the CEO or chair of the group affiliate also serves as a member of the core decision-making team of the business group, the level of decision-making autonomy of the group affiliate is low, which negatively affects its postentry performance. The empirical results of this study indicate that the decision-making autonomy of a new venture group affiliate has positive effects on postentry performance. This confirms the arguments of Birkinshaw (1997) and Birkinshaw and Hood (1998). Based on the suggestions of RDT (Casciaro and Piskorski, 2005; Drees and Heugens, 2013; Pfeffer and Salancik, 1978), a new venture group affiliate could unleash its own creativity or specialties in its new business area more effectively with less control from the core decision-making team of the business group. Alternatively, multiple key roles of a CEO or chair in a firm may result in ethnocentrism, which may negatively affect the autonomy of affiliates. Thus, local adaptation and multi-tasking can be neglected, thereby reducing the quality of decision-making and limiting managerial capacity (Chung and Chan, 2012; Sengul and Gimeno, 2013).

According to Penrose (1959), the key limitation on the growth of a firm is managerial capacity. This view is named the Penrose effect. The conceptualization and application of a firm’s resources by the management team can strongly influence the growth of a firm. The management team depends significantly on its knowledge of the firm and the market to define and shape an expansion path to direct the resources of the firm toward a profitable growth track. However, the complexity of the organization increases with the growth of the firm, thus creating further challenges for the management team. The members that make up the core decision-making team of a business group are mainly drawn from relatives of family members, friends, or the original technology-based entrepreneurial team of the core company (Chung and Chan, 2012; Luo and Chung, 2005). They often have commonly shared experiences or a shared knowledge background. These people often serve as CEOs or chairs of several group affiliates. However, the limited capacity of each individual to handle or process every piece of information will affect the quality of decision-making, thereby affecting the performance of group affiliates (Penrose, 1959; Sengul and Gimeno, 2013). In this situation, the prior experience and knowledge of key decision makers fails to bring benefits to the group affiliate. The results also indirectly confirm the Penrose effect.

6. Conclusion

This study suggests that growth strategies and limitations should be evaluated by empirically examining the determinants of postentry performance of a new venture affiliate of a business group. In addition, in reviewing previous empirical studies on the market-entry decisions of firms, we identify that these studies are mostly based on cross-sectional analysis and largely exclude the impact of financial performance (Kim et al., 2004; Porter, 1987; Sharma, 1998; Sharma and Kesner, 1996). This study utilizes secondary data to fill the gap in this stream of research on the market postentry performance of firms.

Following the logic of the RDT, the empirical results show that under business groups’ cross-holding ownership structure, a new venture affiliate’s relative power and the decision-making autonomy of top management within a business group have significantly positive associations on the affiliate’s market postentry performance. Reducing the number of members in a business group’s core decision-making team who also serve as the CEO or chair of new venture affiliates decentralizes decision-making and allows managerial resources (e.g. professional managers) in the business group to be utilized more efficiently and effectively. This not only has positive effects on affiliates’ performance but also fosters the long-term development of the business group.

In terms of managerial implications, establishing a new venture affiliate requires that the business group invest in resources. This demonstrates the extent to which the business group is committed to strategy. It also reveals the strategic power of the new venture affiliates within the business groups. Regardless, the relative size of a business group’s new venture affiliate is associated with the postentry performance. Second, when the core decision-making team of a business group attempts to assess a new business, the core company should consider what added value could be provided to the new business (Campbell et al., 1995). Whether or not to enter a market should not simply be a decision based on the considered attractiveness of the market in question. At the same time, an issue also exists as to whether the selection of top management in the group affiliate limits the decision-making autonomy of the group affiliate. The findings of this study can provide a reference for diversifying entry of business groups.

Regarding research limitations, this study mainly focuses on annual profitability as a proxy for postentry performance. In practice, many investment returns may not be present in the initial stage, but require a longer period of time to be recovered. In addition, we use three-digit industry codes to determine whether the group affiliate and the business group’s core company are resource-related, based mainly on their products and technologies. In reality, many companies may carry out their diversification using strategic commonalities (e.g. common general management capabilities or resource allocation processes) to improve the performance of a group affiliate. In addition, the development of a large-size business group has come a long way. Apart from its main business, a large-size business group may also achieve core competencies in other industries. Since only limited information of non-public listed business group affiliates can be accessed, resource relatedness and autonomy in decision-making are measured in their categorical forms, which may obfuscate other information. We suggest future research should further explore the long-term development of business group affiliates’ market entry, and the various forms of resource interdependence and autonomy in decision-making within business groups to further complement our understanding of business groups’ operations.

Footnotes

Acknowledgements

The authors thank the National Science Council in Taiwan (NSC 99-2410-H-259-002) for funding this project.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: National Science Council in Taiwan (NSC 99-2410-H-259-002).

Final transcript accepted 28 June 2018 by Martina Linnenluecke (AE Strategy).

References

Agarwal

Audretsch

(2001) Does entry size matter? The impact of the life cycle and technology on firm survival. Journal of Industrial Economics 49: 21–43.

Almeida

Wolfenzon

(2006) A theory of pyramidal ownership and family business groups. Journal of Finance 61: 2637–2680.

Amit

Livant

(1988) Diversification and the risk-return trade-off. Academy of Management Journal 31: 154–166.

Arrighetti

Vivarelli

(1999) The role of innovation in the postentry performance of new small firms: Evidence from Italy. Southern Economic Journal 65: 927–939.

Asoni

Sanandaji

(2016) Identifying the effect of college education on business and employment survival. Small Business Economics 46: 311–324.

Audretsch

Mahmood

(1995) New firm survival: New results using a hazard function. Review of Economics and Statistics 77: 97–103.

Audretsch

Santarelli

Vivarelli

(1999) Start up size and industrial dynamics: Some evidence from Italian manufacturing. International Journal of Industrial Organization 17: 965–983.

Barney

(1991) Firm resources and sustained competitive advantage. Journal of Management 17: 99–120.

Becchetti

Trovato

(2002) The determinants of growth for small and medium sized firms: The role of availability of external finance. Small Business Economics 19: 291–306.

10.

Bird

Huang

(2018) Board independence and the variability of firm performance: Evidence from an exogenous regulatory shock. Australian Journal of Management 43: 3–26.

11.

Birkinshaw

(1997) Entrepreneurship in multinational corporations: The characteristics of subsidiary initiatives. Strategic Management Journal 18: 207–229.

12.

Birkinshaw

Hood

(1998) Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies. Academy of Management Review 23: 773–795.

13.

Bonn

(2004) Board structure and firm performance: Evidence from Australia. Journal of the Australian and New Zealand Academy of Management 10: 14–24.

14.

Brush

(1996) Predicted change in operational synergy and post-acquisition performance of acquired businesses. Strategic Management Journal 17: 1–24.

15.

Cainelli

Iacobucci

(2011) Business groups and the boundaries of the firm. Management Decision 49: 1549–1573.

16.

Campbell

Goold

Alexander

(1995) Corporate strategy: The quest for parenting advantage. Harvard Business Review 73: 120–132.

17.

Casciaro

Piskorski

(2005) Power imbalance, mutual dependence, and constraint absorption: A closer look at resource dependence theory. Administrative Science Quarterly 50: 167–199.

18.

Cefis

Marsili

(2006) Survivor: The role of innovation in firm’s survival. Research Policy 35: 626–641.

19.

Chandler

(1990) Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Belknap of Harvard University Press.

20.

Chang

(1996) An evolutionary perspective on diversification and corporate restructuring. Strategic Management Journal 17: 587–611.

21.

Chang

(2003) Ownership structure, expropriation, and performance of group-affiliated companies in Korea. Academy of Management Journal 46: 238–253.

22.

Chang

Thomas

(1989) The impact of diversification strategy on risk-return performance. Strategic Management Journal 10: 271–284.

23.

Chen

(2015) The determinants behind Chinese companies’ incremental equity issue decisions. Australian Journal of Management 40: 701–723.

24.

Chenhall

(1979) Some elements of organizational control in Australian divisionalised firms. Australian Journal of Management 4: 1–36.

25.

Choe

Dey

Mishra

(2014) Corporate diversification, executive compensation and firm value: Evidence from Australia. Australian Journal of Management 39: 395–414.

26.

Choi

Cowing

(2002) Diversification, concentration and economic performance: Korean business groups. Review of Industrial Organization 21: 271–282.

27.

Chu

(2001) Contingency organizations and shared values: Multiple logics in managing diversification. Asia Pacific Journal of Management 18: 83–99.

28.

Chung

Chan

(2012) Ownership structure, family leadership, and performance of affiliate firms in large family business groups. Asia Pacific Journal of Management 29: 303–329.

29.

Claessens

Djankov

Lang

LHP

(2000) The separation of ownership and control in East Asian corporations. Journal of Financial Economics 58: 81–112.

30.

Colombelli

Krafft

Vivarell

(2016) To be born is not enough: The key role of innovative startups. Small Business Economics 47: 277–291.

31.

Colombo

Grilli

(2010) On growth drivers of high-tech start-ups: Exploring the role of founders’ human capital and venture capital. Journal of Business Venturing 25: 610–626.

32.

Cubbin

Leech

(1983) The effect of shareholding dispersion on the degree of control in British companies: Theory and measurement. Economic Journal 93: 351–369.

33.

Drees

Heugens

(2013) Synthesizing and extending resource dependence theory: A meta-analysis. Journal of Management 39: 1666–1698.

34.

Dwyer

Mellor

(1993) Product innovation strategies and performance of Australian firms. Australian Journal of Management 18: 159–180.

35.

Garnier

(1982) Context and decision making autonomy in foreign affiliates of U.S. multinational corporations. Academy of Management Journal 25: 893–908.

36.

George

Kabir

(2012) Heterogeneity in business groups and the corporate diversification–firm performance relationship. Journal of Business Research 65: 412–420.

37.

Geroski

(1995) What do we know about entry? International Journal of Industrial Organization 13: 421–440.

38.

Ghemawat

Caves

(1986) Capital commitment and profitability: An empirical investigation. Oxford Economic Papers 38: 94–110.

39.

Ghosh

(2017) Corporate reputation, social performance, and organizational variability in an emerging country perspective. Journal of Management & Organization 23: 545–565.

40.

González

Guzmán

Pombo

et al . (2012) Family firms and financial performance: The cost of growing. Emerging Markets Review 13: 626–649.

41.

Granovetter

(2005) Business groups and social organization. In: Smelser

Swedberg

(eds) The Handbook of Economic Sociology. 2nd ed. Princeton, NJ: Princeton University Press, pp. 429–450.

42.

Greene

(1997) Econometric Analysis. Upper Saddle River, NJ: Prentice Hall.

43.

Guillén

(2000) Business groups in emerging economies: A resource-based view. Academy of Management Journal 43: 362–380.

44.

Hall

Jr (1995) Corporate diversification and performance: An investigation of causality. Australian Journal of Management 20: 25–42.

45.

Hamilton

Shergill

(1993) Extent of diversification and company performance: The New Zealand evidence. Managerial and Decision Economics 14: 47–52.

46.

Hechavarría

Matthews

Reynolds

(2016) Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics. Small Business Economics 46: 137–167.

47.

Hoskisson

Johnson

Tihanyi

et al . (2005) Diversified business groups and corporate refocusing in emerging economies. Journal of Management 31: 941–965.

48.

Hussin

Saidin

(2012) Economic growth in ASEAN-4 countries: A panel data analysis. International Journal of Economics and Finance 4: 119–129.

49.

Johnston

Menguc

(2007) Subsidiary size and the level of subsidiary autonomy in multinational corporations: A quadratic model investigation of Australian subsidiaries. Journal of International Business Studies 38: 787–801.

50.

Khanna

Palepu

(1997) Why focused strategies may be wrong for emerging markets. Harvard Business Review 75: 41–51.

51.

Khanna

Palepu

(2000) Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance 55: 867–891.

52.

Khanna

Rivkin

(2006) Interorganizational ties and business group boundaries: Evidence from an emerging economy. Organization Science 17: 333–352.

53.

Khanna

Yafeh

(2007) Business groups in emerging markets: Paragons or parasites? Journal of Economic Literature 45: 331–372.

54.

Kim

Hoskisson

Wan

(2004) Power dependence, diversification strategy, and performance in keiretsu member firms. Strategic Management Journal 25: 613–636.

55.

Kim

Yang

(2015) Infant firms in emerging market: An analysis of stand-alones vs. subsidiaries. Emerging Markets Review 25: 30–52.

56.

Zubielqui

O’Connor

(2015) Entrepreneurial networking capacity of cluster firms: A social network perspective on how shared resources enhance firm performance. Small Business Economics 45: 523–541.

57.

Greenwood

(2004) The effect of within-industry diversification on firm performance: Synergy creation, multi-market contact and market structuration. Strategic Management Journal 25: 1131–1153.

58.

Locorotondo

Dewaelheyns

Van Hulle

(2014) Cash holdings and business group membership. Journal of Business Research 67: 316–323.

59.

Luo

Chung

(2005) Keeping it all in the family: The role of particularistic relationships in business group performance during institutional transition. Administrative Science Quarterly 50: 404–439.

60.

Luo

Chung

Sobczak

(2009) How do corporate governance model differences affect foreign direct investment in emerging economies? Journal of International Business Studies 40: 444–567.

61.

Luo

(1997) Performance implications of international strategy. Group & Organization Management 22: 87–116.

62.

Madhok

(1997) Cost value and foreign market entry mode: The transaction and the firm. Strategic Management Journal 18: 39–61.

63.

Mahoney

Pandian

(1992) The resource-based view within the conversation of strategic management. Strategic Management Journal 13: 363–380.

64.

Markides

Williamson

(1996) Corporate diversification and organizational structure: A resource-based view. Academy of Management Journal 39: 340–367.

65.

Mata

Portugal

Guimaraes

(1995) The survival of new plants: Start-up conditions and post-entry evolution. International Journal of Industrial Organization 13: 459–482.

66.

Medcof

(2001) Resource-based strategy and managerial power in networks of internationally dispersed technology units. Strategic Management Journal 22: 999–1012.

67.

Montgomery

(1985) Product-market diversification and market power. Academy of Management Journal 28: 789–798.

68.

Mudambi

Pedersen

Andersson

(2014) How subsidiaries gain power in multinational corporations. Journal of World Business 49: 101–113.

69.

Mugoša

(2015) The determinants of capital structure choice: Evidence from Western Europe. Business and Economic Horizons 11: 76–95.

70.

Mundt

Alfarano

Milakovic

(2016) Gibrat’s law redux: Think profitability instead of growth. Industrial and Corporate Change 25: 549–571.

71.

Oliver

(1991) Network relations and loss of organizational autonomy. Human Relations 44: 943–961.

72.

Pan

Tse

(1999) The impact of order and mode of market entry on profitability and market share. Journal of International Business Studies 30: 81–103.

73.

Paterson

Brock

(2002) The development of subsidiary-management research: Review and theoretical analysis. International Business Review 11: 139–163.

74.

Patrisia

Dastgir

(2017) Diversification and corporate social performance in manufacturing companies. Eurasian Business Review 7: 121–139.

75.

Peng

(2003) Institutional transitions and strategic choices. Academy of Management Review 28: 275–296.

76.

Penrose

(1959) The Theory of Growth of the Firm. New York: John Wiley.

77.

Perényi

Yukhanaev

(2016) Testing relationships between firm size and perceptions of growth and profitability: An investigation into the practices of Australian ICT SMEs. Journal of Management & Organization 22: 680–701.

78.

Pfeffer

(1992) Understanding power in organizations. California Management Review 34: 29–50.

79.

Pfeffer

Salancik

(1978) The External Control of Organizations: A Resource Dependence Perspective. New York: Harper & Row.

80.

Pham

Suchard

Zein

(2011) Corporate governance and alternative performance measures: Evidence from Australian firms. Australian Journal of Management 36: 371–386.

81.

Porter

(1987) From competitive advantage to corporate strategy. Harvard Business Review 65(13): 43–59.

82.

Powell

Shi

Smith

et al . (2009) Common divisors, payout persistence, and return predictability. International Review of Finance 9: 335–357.

83.

Quatraro

Vivarelli

(2015) Drivers of entrepreneurship and post-entry performance of newborn firms in developing countries. World Bank Research Observer 30: 277–305.

84.

Ramachandran

Manikandan

Pant

(2013) Why conglomerates thrive (outside the US). Harvard Business Review 91: 110–119.

85.

Rehman

(2016) Network alliances and firm’s performance: A panel data analysis of Pakistani SMEs. Eurasian Business Review 6: 37–52.

86.

Rumelt

(1986) Strategy, Structure, and Economic Performance. Boston, MA: Harvard Business School Press.

87.

Sakhartov

(2017) Economies of scope, resource relatedness, and the dynamics of corporate diversification. Strategic Management Journal 38: 2168–2188.

88.

Sambharya

Banerji

(2006) The effect of keiretsu affiliation and resource dependencies on supplier firm performance in the Japanese automobile industry. Management International Review 46: 7–37.

89.

Sengul

Gimeno

(2013) Constrained delegation limiting subsidiaries’ decision rights and resources in firms that compete across multiple industries. Administrative Science Quarterly 58: 420–471.

90.

Shane

(2001) Technological opportunities and new firm creation. Management Science 47: 205–220.

91.

Sharma

(1998) Mode of entry and ex-post performance. Strategic Management Journal 19: 879–900.

92.

Sharma

Kesner

(1996) Diversifying entry: Some ex ante explanations for postentry survival and growth. Academy of Management Journal 39: 635–677.

93.

Shi

Bilson

Powell

et al . (2010) Foreign direct investment and international stock market integration. Australian Journal of Management 35: 265–290.

94.

Singhchawla

Evans

(2011) Board independence, sub-committee independence and firm performance: Evidence from Australia. Asia Pacific Journal of Economics & Business 15: 1–15.

95.

Taggart

(1998) Strategy shifts in MNCs subsidiaries. Strategic Management Journal 19: 663–681.

96.

Vivarelli

(2013) Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries. Industrial and Corporate Change 22: 1453–1495.

97.

Watson

Dickinson

(1981) International diversification: An ex post and ex ante analysis of possible benefits. Australian Journal of Management 6: 125–134.

98.

Wood

Khavul

Perez-Nordtvedt

et al . (2011) Strategic commitment and timing of internationalization from emerging markets: Evidence from China, India, Mexico, and South Africa. Journal of Small Business Management 49: 252–282.

99.

Yasuda

(2005) Firm growth, size, age, and behavior in Japanese manufacturing. Small Business Economics 24: 1–15.

100.

Yiu

Bruton

(2005) Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper. Journal of Management Studies 42: 183–206.

101.

Young

Tavares

(2004) Centralization and autonomy: Back to the future. International Business Review 13: 215–237.

102.

Zhu

(2012) Capital structure: The case of firms issuing debt. Australian Journal of Management 37: 283–295.