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From Diversification Premium To Diversification Discount During Institutional Transitions

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  • Lee, Keonbeom
  • Peng, Mike
  • Lee, Keun

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 during 1984-96 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.

Suggested Citation

  • Lee, Keonbeom & Peng, Mike & Lee, Keun, 2005. "From Diversification Premium To Diversification Discount During Institutional Transitions," MPRA Paper 109778, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109778
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    More about this item

    Keywords

    business groups; diversification; Korean firms; institution;
    All these keywords.

    JEL classification:

    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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