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From diversification premium to diversification discount during institutional transitions

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

Suggested Citation

  • Lee, Keonbeom & Peng, Mike W. & Lee, Keun, 2008. "From diversification premium to diversification discount during institutional transitions," Journal of World Business, Elsevier, vol. 43(1), pages 47-65, January.
  • Handle: RePEc:eee:worbus:v:43:y:2008:i:1:p:47-65
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    References listed on IDEAS

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