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From diversification premium to diversification discount during institutional transitions

  • Lee, Keonbeom
  • Peng, Mike W.
  • Lee, Keun
Registered author(s):

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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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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