Skip to main content
Log in

Abstract

We clarify what business groups are and analyze their various types. We first distinguish business groups from other types of firm networks based on the strategic relationships among companies; business groups are defined as those networks that exhibit unrelated diversification under common ownership. We then separate business groups into three types based on their ownership: family-owned, widely-held, and state-owned. We argue that each type has different agency costs and diversification logics. As a result of these differences, their performance varies, with family-owned business groups outperforming widely-held ones, and these in turn outperforming state-owned business groups.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1

Similar content being viewed by others

References

  • Aganin, A., & Volpin, P. 2004. The history of corporate ownership in Italy. http://www.nber.org/books/corp-owner03/ Accessed June 10, 2005.

  • Ahlstrom, D., & Bruton, G. D. 2004. Guest editors’ introduction to the special issue. Turnaround in Asia: Laying the foundation for understanding this unique domain. Asia Pacific Journal of Management, 21: 5–24.

    Article  Google Scholar 

  • Alchian, A. 1965. Some economics of property rights. Politico, 30: 816–829.

    Google Scholar 

  • Almeida, H., & Wolfenzon, D. 2005. A theory of pyramidal ownership and family business groups. NBER Working Papers: 11368.

  • Anderson, R. C., & Reeb, D. M. 2003. Founding-family ownership, corporate diversification, and firm leverage. Journal of Law and Economics, XLVI: 653–684.

    Article  Google Scholar 

  • Anderson, R. C., & Reeb, D. M. 2003b. Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58: 1301–1327.

    Article  Google Scholar 

  • Baker, G. P. 1992. Beatrice: A study in the creation and destruction of value. Journal of Finance, 47: 1081–1119.

    Article  Google Scholar 

  • Becht, M., Bolton, P., & Roell, A. 2003. Corporate governance and control. In Constantinides, G. M., Harris, M., & Stulz, R. M. (Eds.) Handbook of the economics of finance, Vol 1A. North-Holland: Elsevier.

    Google Scholar 

  • Becht, M., & DeLong, J. B. 2004. Why has there been so little blockholding in America? NBER. http://www.nber.org/books/corp-owner03/. Accessed June 10, 2005.

  • Bergh, D. D. 2001. Diversification strategy research at crossroads: Established, emerging and anticipated paths. In Hitt, M. A., Freeman, R. E., & Harrison, J. S. (Eds.) The Blackwell handbook of strategic management: 362–383. Oxford: Blackwell.

    Google Scholar 

  • Boycko, M., Shleifer, A., & Vishny, R. W. 1996. A theory of privatization. Economic Journal, 106: 309–319.

    Article  Google Scholar 

  • Boyd, W. 1986. The comparative efficiency of state owned enterprises. In Negandhi, A. R. (Ed.), Multinational corporations and state-owned enterprises: A new challenge in international business. Research in international business and international relations: 179–194. Greenwich, CN: JAI.

    Google Scholar 

  • Brandenburger, A. M., & Nalebuff, B. J. 1996. Co-opetition. New York: Doubleday.

    Google Scholar 

  • Brickley, J. A. 1999. Incentive conflicts and contractual restraints: Evidence from franchising. Journal of Law & Economics, 42: 745–774.

    Article  Google Scholar 

  • Bruton, H. J. 1998. A reconsideration of import substitution. Journal of Economic Literature, 36: 903–936.

    Google Scholar 

  • Campa, J. M., & Kedia, S. 2002. Explaining the diversification discount. Journal of Finance, 57: 1731–1762.

    Article  Google Scholar 

  • Carney, M. 2005. Globalization and the renewal of Asian business networks. Asia Pacific Journal of Management, 22: 337–354.

    Article  Google Scholar 

  • Carney, M., & Gedajlovic, E. 2003. Strategic innovation and the administrative heritage of East Asian family business groups. Asia Pacific Journal of Management, 20(1): 5–26.

    Article  Google Scholar 

  • Chang, S. 2005. Business groups in East Asia: Financial crisis, restructuring, and new growth. Oxford: Oxford University Press.

    Google Scholar 

  • Chang, S. J., & Hong, J. 2002. How much do business groups matter in Korea. Strategic Management Journal, 23: 265–274.

    Article  Google Scholar 

  • Chung, H. M. 2005. Managerial ties, control and deregulation: An investigation of business groups entering the deregulated banking industry in Taiwan. Paper presented at the APJM conference on business groups.

  • Claessens, S., Djankov, S., Fan, J., & Lang, L. 1999. Expropriation of minority shareholders: Evidence from East Asia. World Bank, Washington D.C., Policy Research paper 2088.

  • Claessens, S., Djankov, S., & Lang, L. 2000. The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58: 81–112.

    Article  Google Scholar 

  • Cuervo-Cazurra, A. 1997. Ownership structure and firm behavior: Alternative objectives of shareholders in Spain. Unpublished PhD thesis, University of Salamanca, Salamanca, Spain.

  • Cuervo-Cazurra, A. 1999a. Resource development through the co-evolution of resources and scope. Unpublished PhD thesis. Massachusetts Institute of Technology, Cambridge, Massachusetts.

  • Cuervo-Cazurra, A. 1999b. Large shareholders and private benefits: The case of banks as shareholders of non-financial firms. Investigaciones Europeas de Dirección y Economía de la Empresa, 5(1): 21–44.

    Google Scholar 

  • Davis, P. 1983. Realizing the potential of the family business. Organizational Dynamics, 12: 47–56.

    Article  Google Scholar 

  • Dyer, J. H., & Nobeoka, K. 2000. Creating and managing a high-performance knowledge-sharing network: The Toyota case. Strategic Management Journal, 21: 345–367.

    Article  Google Scholar 

  • Economist. 2005. Indian business. Hand rocks cradle. The Economist: Jun 23. http://www.economist.com/PrinterFriendly.cfm?Story_ID=4112417. Accessed June 20, 2005.

  • Edwards, C. D. 1955. Conglomerate bigness as a source of power. In Stigler, G. (Ed.) Business concentration and price policy. Princeton, NJ: Princeton University Press.

    Google Scholar 

  • Encarnation, D. 1989. Dislodging multinationals: India’s comparative perspective. Cornell University Press, NY: Ithaca.

    Google Scholar 

  • Faccio, M., Lang, L. H. P., & Young, L. 2001. Dividends and Expropriation. American Economic Review, 91: 54–78.

    Article  Google Scholar 

  • Fama, E., & Jensen, M. 1983. Separation of ownership and control. Journal of Law and Economics, 26: 301–325.

    Article  Google Scholar 

  • Filatotchev, I., Lien, Y.-C., & Piesse, J. 2005. Corporate governance and performance in publicly listed family-controlled firms: Evidence from Taiwan. Asia Pacific Journal of Management, 22(3): 257–283.

    Article  Google Scholar 

  • Fisman, R., & Khanna, T. 2004. Facilitating development: The role of business groups. World Development, 32(4): 609–628.

    Article  Google Scholar 

  • Fohlin, C. 2004. The history of corporate governance in Germany. NBER. http://www.nber.org/books/corp-owner03/. Accessed June 10, 2005.

  • Fujita, M., Krugman, P., & Venables, A. J. 1999. The spatial economy. Cities, regions, and international trade. Cambridge, MA: MIT Press.

    Google Scholar 

  • Ghemawat, P., & Khanna, T. 1998. The nature of diversified business groups: A research design and two case studies. Journal of Industrial Economics, 46: 35–61.

    Article  Google Scholar 

  • Ghemawat, P., & Matthews, J. L. 2000. The globalization of CEMEX. Harvard Business School Case 9-701-107.

  • Granovetter, M. 1994. Business groups. In Smelser, N. J., & Swedberg, R. (Eds.) Handbook of economic sociology. Princeton University Press.

  • Guillén, M. F. 2000. Business groups and economic development: A resource-based. Academy of Management Journal, 43: 362–380.

    Article  Google Scholar 

  • Harris, M., & Raviv, A. 1991. A theory of capital structure. Journal of Finance, 46(1): 297–355.

    Article  Google Scholar 

  • Hart, O. D. 1983. The market mechanism as an incentive scheme. Bell Journal of Economics, 14: 366–382.

    Article  Google Scholar 

  • Holmstrom, B. R., & Tirole, J. 1989. The theory of the firm. In Schmalensee, R., & Willig, R. D. (Eds.), Handbook of industrial organization, Vol. Volume I: 61–134. Amsterdam: Elsevier.

    Chapter  Google Scholar 

  • Hoshi, T., & Kashyap, A. 2001. Corporate financing and governance in Japan. Cambridge, MA: MIT Press.

    Google Scholar 

  • Hoskisson, R. E., Johnson, R. A., Tihanyi, L., & White, R. E. 2005. Diversified business groups and corporate refocusing in emerging economies. Journal of Management, 31(6): 941–965.

    Article  Google Scholar 

  • Jensen, M. C. 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76: 323–329.

    Google Scholar 

  • Jensen, M. C. 1988. The takeover controversy: Analysis and evidence. In Coffee, J. C. Jr., Lowenstein, L., & Rose-Ackerman, S. (Eds.) Knights, raiders, and targets: The impact of the hostile takeover: 314–354. New York: Oxford University Press.

    Google Scholar 

  • Jensen, M. C., & Meckling, W. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305–360.

    Article  Google Scholar 

  • Keister, L. 2004. Chinese business groups. Oxford: Oxford University Press.

    Google Scholar 

  • Khanna, T., & Palepu, K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75: 41–51.

    Google Scholar 

  • Khanna, T., & Palepu, K. 2000a. Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance, 55: 867–891.

    Article  Google Scholar 

  • Khanna, T., & Palepu, K. 2000b. The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43: 268–285.

    Article  Google Scholar 

  • Khanna, T., & Rivkin, J. W. 2000. Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22: 45–74.

    Article  Google Scholar 

  • Khanna, T., & Yafeh, Y. 2005. Business groups in emerging markets: Paragons or parasites? Harvard Business School working paper.

  • Kim, H., Hoskisson, R. E., Tihanyi, L, & Hong, J. 2004. The evolution and restructuring of diversified business groups in emerging markets: The lessons from chaebols in Korea. Asia Pacific Journal of Management, 21: 25–48.

    Article  Google Scholar 

  • Kornai, J. 1990. Vision and reality: Market and state. New York: Routledge.

    Google Scholar 

  • Kosacoff, B. (Ed.). 2000. Corporate strategies under structural adjustment in Argentina: Responses by industrial firms to a new set of uncertainties. New York: St. Martin’s.

  • Lang, L. H. P., & Stulz, R. M. 1994. Tobin’s q, corporate diversification, and firm performance. Journal of Political Economy, 102: 1248–1280.

    Article  Google Scholar 

  • Lee, S. H., & Park, J. H. 2005. Diversification strategy of emerging economy firms: A comparative business systems perspective on East Asia. Paper presented at the APJM conference on business groups.

  • Leff, N. H. 1978. Industrial organization and entrepreneurship in the developing countries: The economic groups. Economic Development and Cultural Change, 26: 661–675.

    Article  Google Scholar 

  • Lindsay, M. 1976. A theory of government enterprise. Journal of Political Economy, 84: 1061–1077.

    Article  Google Scholar 

  • Mahmood, I. P., & Lee, C.-Y. 2005. Business groups: Entry barrier-innovation debate revisited. Journal of Economic Behavior & Organization, 54(4): 513–531.

    Article  Google Scholar 

  • Maury, B. 2006. Family ownership and firm performance: Empirical evidence from Western European corporations. Journal of Corporate Finance, 12(2): 321–341.

    Article  Google Scholar 

  • Milgrom, P., & Roberts, J. 1992. Economics, organization, and management. Englewood Cliffs, NJ: Prentice Hall.

    Google Scholar 

  • Montgomery, C. 1994. Corporate diversification. Journal of Economic Perspectives, 8: 163–178.

    Google Scholar 

  • Morck, R., & Nakamura, M. 2005. A frog in a well knows nothing of the ocean: A history of corporate ownership in Japan. NBER. http://www.nber.org/books/corp-owner03/. Accessed June 10, 2005.

  • Morck, R., Percy, M., Tian, G., & Yeung, B. 2004. The rise and fall of the widely held firm: A history of corporate ownership in Canada. NBER. http://www.nber.org/books/corp-owner03/. Accessed June 10, 2005.

  • Morck, R., & Yeung, B. 2003. Agency problems in large family business groups. Entrepreneurship Theory and Practice, 27(4): 367–383.

    Article  Google Scholar 

  • Mueller, D. C. 1955. A theory of conglomerate merger. Quarterly Journal of Economics, 1969: 643–659.

    Google Scholar 

  • Niskanen, W. A. 1975. Bureaucrats and politicians. Journal of Law and Economics, 18: 617–643.

    Article  Google Scholar 

  • Nohria, N., & Garcia-Pont, C. 1991. Global strategic linkages and industry structure. Strategic Management Journal, 12: 105–124.

    Article  Google Scholar 

  • Ramaswamy, K., Li, M., & Pettit, B. S. P. 2004. Who drives unrelated diversification? A study of Indian manufacturing firms. Asia Pacific Journal of Management, 21(4): 403–423.

    Article  Google Scholar 

  • Sappington, D. E., & Stiglitz, J. E. 1987. Privatization, information and incentives. Journal of Policy Analysis and Management, 12: 1–24.

    Google Scholar 

  • Saxenian, A. 1994. Regional advantage. Culture and competition in Silicon Valley and Route 128. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Scharfstein, D. S., & Stein, J. C. 2000. The dark side of internal capital markets: Divisional rent-seeking and inefficient investment. Journal of Finance, 55: 2537–2564.

    Article  Google Scholar 

  • Shirley, M. M., & Walsh, P. 2000. Public versus private ownership: The current state of the debate. World Bank Policy Research Working Paper Series #2420, Washington, DC.

  • Shirley, M. M., & Xu, L. C. 1998. Information, incentives, and commitment: An empirical analysis of contracts between government and state enterprises. Journal of Law, Economics, and Organization, 42: 358–378.

    Article  Google Scholar 

  • Shleifer, A., & Vishny, R. W. 1994. Politicians and firms. Quarterly Journal of Economics, 109: 995–1025.

    Article  Google Scholar 

  • Shleifer, A., & Vishny, R. W. 1997. A survey of corporate governance. Journal of Finance, 52: 737–783.

    Article  Google Scholar 

  • Simon, M. C. 1998. The rise and fall of bank control in the United States: 1890–1939. The American Economic Review, 88: 1077–1093.

    Google Scholar 

  • Singell, L. D. Jr., & Thornton, J. 1997. Nepotism, discrimination, and the persistence of utility-maximizing, owner-operated firms. Southern Economics Journal, 63: 904–920.

    Article  Google Scholar 

  • Takeishi, A. 2002. Knowledge partitioning in the interfirm division of labor: The case of automotive product development. Organization Science, 13(3): 321–338.

    Article  Google Scholar 

  • Tsui, A. S. 2004. Contributing to global management research knowledge: A case for high quality indigenous research. Asia Pacific Journal of Management, 21: 491–513.

    Article  Google Scholar 

  • Vickers, J., & Yarrow, G. 1988. Privatization: An economic analysis. Cambridge, MA: MIT Press.

    Google Scholar 

  • Villalonga, B., & Amit, R. 2004. How do family ownership, management, and control affect firm value. Harvard Business School and Wharton working paper.

  • Wang, H.-M., Huang, H., & Bansal, P. 2005. What determined success during the Asian economic crisis? The importance of experiential knowledge and group affiliation. Asia Pacific Journal of Management, 22(1): 89–106.

    Article  Google Scholar 

  • White, S. 2004. Stakeholders, structure, and the failure of corporate governance reforms initiatives in post-crisis Thailand. Asia Pacific Journal of Management, 21: 103–122.

    Article  Google Scholar 

  • Williamson, O. E. 1988. Corporate finance and corporate governance. Journal of Finance, 63: 567–598.

    Article  Google Scholar 

  • Willner, J. 1996. Social objectives, market rule and public policy. In Devine, P., Katsoulacas, Y., & Sugden, R. (Eds.) Competitiveness, subsidiarity and industrial policy. New York: Routledge.

    Google Scholar 

  • World Bank. 1995. Bureaucrats in business. The economics and politics of government ownership. Oxford: Oxford University Press.

    Google Scholar 

  • Yafeh, Y. 2003. Japan’s corporate groups: Some international and historical perspectives. In Blomström, M., Corbett, J., Hayashi, F., & Kashyap, A. (Eds.) Structural impediments to growth in Japan. Chicago: University of Chicago Press.

    Google Scholar 

  • Yiu, D., Bruton, G. D., & Lu, Y. 2005. Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper. Journal of Management Studies, 42: 183–206.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Alvaro Cuervo-Cazurra.

Additional information

I am grateful to Michael Carney, Andrew Delios, Mike Peng, Kendall Roth, Annique Un, two anonymous reviewers, and participants at the Asia Pacific Journal of Management special issue conference on conglomerates and business groups in Asia-Pacific for their suggestions. The Asia Academy of Management and the National University of Singapore provided financial support to attend the Asia Pacific Journal of Management special issue conference. Additional funding was provided by the Center for International Business Education and Research at the University of South Carolina. All errors remain mine.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Cuervo-Cazurra, A. Business groups and their types. Asia Pacific J Manage 23, 419–437 (2006). https://doi.org/10.1007/s10490-006-9012-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10490-006-9012-5

Keywords

Navigation