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From diversification premium to diversification discount during institutional transitions

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  • Lee, Keonbeom
  • Peng, Mike W.
  • Lee, Keun
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Abstract

Recent development of an institution-based theory of corporate diversification has uncovered a diversification premium in emerging economies, suggesting that some business group-affiliated companies may outperform competing firms not affiliated with business groups. Is the diversification premium found in emerging economies likely to hold over time? This article extends the institution-based theory by arguing that as institutional transitions unfold, diversification premium in emerging economies is likely to dissipate over time and eventually become a diversification discount. We empirically draw on a data set from South Korea between 1984 and 1996 involving 84 business groups and 751 group-affiliated and independent firms to substantiate this claim via a "chop shop" method. To the best of our knowledge, this represents the first study that documents the longitudinal process of how a diversification premium becomes a diversification discount during institutional transitions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of World Business.

Volume (Year): 43 (2008)
Issue (Month): 1 (January)
Pages: 47-65

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Handle: RePEc:eee:worbus:v:43:y:2008:i:1:p:47-65

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References

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Citations

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Cited by:
  1. Lee, Seung-Hyun & Beamish, Paul W. & Lee, Ho-Uk & Park, Jong-Hun, 2009. "Strategic choice during economic crisis: Domestic market position, organizational capabilities and export flexibility," Journal of World Business, Elsevier, vol. 44(1), pages 1-15, January.
  2. Michael Carney, 2008. "The many futures of Asian business groups," Asia Pacific Journal of Management, Springer, vol. 25(4), pages 595-613, December.
  3. Michael Carney & Eric Gedajlovic & Xiaohua Yang, 2009. "Varieties of Asian capitalism: Toward an institutional theory of Asian enterprise," Asia Pacific Journal of Management, Springer, vol. 26(3), pages 361-380, September.
  4. George, Rejie & Kabir, Rezaul, 2012. "Heterogeneity in business groups and the corporate diversification–firm performance relationship," Journal of Business Research, Elsevier, vol. 65(3), pages 412-420.
  5. Peng, Mike W. & Su, Weichieh, 2014. "Cross-listing and the scope of the firm," Journal of World Business, Elsevier, vol. 49(1), pages 42-50.
  6. Viral V. Acharya & Yakov Amihud & Lubomir Litov, 2009. "Creditor rights and corporate risk-taking," NBER Working Papers 15569, National Bureau of Economic Research, Inc.
  7. Rakesh Basant & Karthik Dhandapani, 2010. "Measuring Institutional Relatedness," Working Papers id:2543, eSocialSciences.
  8. Yi Jiang & Mike Peng, 2011. "Are family ownership and control in large firms good, bad, or irrelevant?," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 15-39, March.
  9. Lee, Ji-Hwan & Gaur, Ajai S., 2013. "Managing multi-business firms: A comparison between Korean chaebols and diversified U.S. firms," Journal of World Business, Elsevier, vol. 48(4), pages 443-454.
  10. Klaus E. Meyer & Saul Estrin & Sumon Kumar Bhaumik & Mike W. Peng, 2009. "Institutions, resources and entry strategies in emerging economies," LSE Research Online Documents on Economics 4217, London School of Economics and Political Science, LSE Library.
  11. Kannan Ramaswamy & Mingfang Li & Barbara Petitt, 2012. "Why do business groups continue to matter? A study of market failure and performance among Indian manufacturers," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 643-658, September.
  12. Weiping Liu & Haibin Yang & Guangxi Zhang, 2012. "Does family business excel in firm performance? An institution-based view," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 965-987, December.
  13. Lee, Keun & Kim, Ji Youn & Lee, Oonkyu, 2010. "Long-term evolution of the firm value and behavior of business groups: Korean chaebols between weak premium, strong discount, and strong premium," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 412-440, September.
  14. Karthik, D. & Basant, Rakesh, . "Measuring Institutional Relatedness," IIMA Working Papers WP2009-05-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
  15. Xavier, Wlamir Gonçalves & Bandeira-de-Mello, Rodrigo & Marcon, Rosilene, 2014. "Institutional environment and Business Groups' resilience in Brazil," Journal of Business Research, Elsevier, vol. 67(5), pages 900-907.
  16. Lien, Yung-Chih & Li, Shaomin, 2013. "Does diversification add firm value in emerging economies? Effect of corporate governance," Journal of Business Research, Elsevier, vol. 66(12), pages 2425-2430.
  17. Hicheon Kim & Johngseok Bae & Garry Bruton, 2012. "Business groups and institutional upheaval in emerging economies: Corporate venturing in Korea," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 729-752, September.

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