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Business group heterogeneity and the internationalization-performance relationship: Evidence from Indian business groups

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Business groups, the dominant organizational form in many Asian markets, have expanded their operations into international markets. We combine the resources-based view with the institutional perspective to highlight the costs and benefits of business groups’ internationalization, rather than business groups’ affiliated firms’ internationalization, and consider how ownership heterogeneity among business groups influences the internationalization-performance relationship. Three ownership types—family, domestic financial institution, and foreign corporate—serve as distinguishing characteristics of business groups and potential moderators of this relationship. In a sample of 185 Indian business groups examined over more than a decade (2000–2010), we find that these three ownership types have a differential impact on the internationalization-performance relationship¸ depending on the level of internationalization of the business group. Specifically¸ we find that at lower levels of internationalization, family and foreign corporate ownership has a positive moderating effect whereas domestic financial institutional ownership has a negative moderating effect. Conversely¸ at higher levels of internationalization, family and foreign corporate ownership has a negative moderating effect, while domestic financial institutional ownership positively moderates the internationalization-performance relationship.

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  1. 1 USD = Rs 65.00 (approx.).

  2. We discuss this further in our Discussion and Conclusion section as a limitation to our study.

  3. We have also used the sample mean of internationalization to categorize business groups into lower and higher levels of internationalization. The results are similar though less statistically significant.

  4. To test the validity of our inverted U-shaped relationship, we obtained the turning (maximum) point of our curve. Since all our models in Table 4 have both the linear and quadratic term, we use the most complete model (Model 8). We find that the maximum occurs when our value of internationalization is .035, which is very close to the mean (.038, Table 2), thus validating our relationship (Meyer, 2009).

  5. Model 3 also incorporates the interaction of the squared term of internationalization with family ownership. The co-efficient though negative is insignificant.


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We would like to thank the Special Issue editors Bersant Hobdari, Jing Li, Klaus Meyer, Peter Gammeltoft, and two anonymous reviewers for their feedback as well as Michael Carney for final guidance on this manuscript. Saptarshi would like to thank the Indian Institute of Management Calcutta for a research grant for this paper.

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Correspondence to Vikas Kumar.

Appendix: Construction of industry-adjusted variables and ownership variables

Appendix: Construction of industry-adjusted variables and ownership variables

We consider a business group with j affiliated listed firms. These j firms are present in n two-digit NIC industries. Here, TABG is the sum of the total assets of all listed within the business group, and SBG is the sum of sales of all listed firms within the business group.

  1. a.

    Excess ROA = ROA of business group − Imputed ROA of the business group

    ROA of business group = \( {\displaystyle {\sum}_{i=1}^j\frac{PBDIT{A}_i}{Asset{s}_i}*\frac{Asset{s}_i}{TAB{G}_b}} \) for the i th firm within the b th business group.

    Imputed ROA of the business group = \( {\displaystyle {\sum}_{k=1}^n{\displaystyle {\sum}_{i=1}^j\frac{Asset{s}_i}{TAB{G}_b}*RO{A}_k^{median}}} \), where ROA median k is the median ROA for the k th two-digit NIC industry. Firm i belongs to the k th two digit NIC industry.

  2. b.

    Industry-weighted foreign sales to total sales = FSTS of business group − Imputed FSTS of the business group

    FSTS of business group = \( {\displaystyle {\sum}_{i=1}^j\frac{Foreign\ sale{s}_i}{Sale{s}_i}*\frac{Sale{s}_i}{SB{G}_b}} \) for the i th firm within the b th business group

    Imputed ROA of the business group = \( {\displaystyle {\sum}_{k=1}^n{\displaystyle {\sum}_{i=1}^j\frac{Sale{s}_i}{SB{G}_b}*FST{S}_k^{median}}} \), where FSTS median k is the median FSTS for the k th two-digit NIC industry

  3. c.

    Industry-weighted marketing intensity = Marketing intensity of business group − Imputed marketing intensity of the business group

    Marketing intensity of business group = \( {\displaystyle {\sum}_{i=1}^j\frac{Marketing\ expenditur{e}_i}{Sale{s}_i}*\frac{Sale{s}_i}{SB{G}_b}} \) for the i th firm within the b th business group

    Imputed marketing intensity of the business group = \( {\displaystyle {\sum}_{k=1}^n{\displaystyle {\sum}_{i=1}^j\frac{Marketing\ expenditur{e}_i}{SB{G}_b}* Marketing\ intensit{y}_k^{median}}} \), where Marketing intensity median k is the median marketing intensity for the k th two-digit NIC industry

  4. d.

    Control-cash flow rights wedge = \( {\displaystyle {\sum}_{i=1}^j\frac{Asset{s}_i}{TAB{G}_b}*{\left( Control\ rights- Cash\ flow\ rights\right)}_i} \) for the i th firm within the b th business group

  5. e.

    Degree of business group family ownership = \( {\displaystyle {\sum}_{i=1}^j\frac{Asset{s}_i}{TAB{G}_b}*\ {\left(\%\ shareholding\ by\ founding\ family\ and\ group\ firms\right)}_i} \)

  6. f.

    Degree of business group domestic financial institutional ownership = \( {\displaystyle {\sum}_{i=1}^j\frac{Asset{s}_i}{TAB{G}_b}*\ {\left(\%\ shareholding\ by\ domestic\ \left(i.e.\ Indian\right)\ financial\ institutions\right)}_i} \)

  7. g.

    Degree of business group foreign corporate ownership = \( {\displaystyle {\sum}_{i=1}^j\frac{Asset{s}_i}{TAB{G}_b}*\ {\left(\%\ shareholding\ by\ foreign\ non- financial\ corporations\ \right)}_i} \)

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Purkayastha, S., Kumar, V. & Lu, J.W. Business group heterogeneity and the internationalization-performance relationship: Evidence from Indian business groups. Asia Pac J Manag 34, 247–279 (2017).

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