Skip to main content
SpringerLink
Log in

Extension and integrity of business groups: Evidence from China

  • Original Article
  • Published:
Asian Business & Management Aims and scope Submit manuscript

Abstract

Under what conditions do business groups become large, and under what conditions do they become integrated? As business units with ambiguous boundaries, especially in East Asia, business groups have been the subject of many studies, both theoretical and empirical. Although previous studies on business groups have generally followed the performance approach, we introduce two dimensions of group-likelihood – extension and integrity – as the substance of business groups. On the basis of this theoretical background, we analyze the influences of various elements on group-likelihood, especially in China, by observing 1561 listed companies in the Chinese A stock market. We conclude that (i) marketization decreases only extension, not integrity; (ii) surplus resources increase both; (iii) state ownership increases extension, whereas private ownership increases integrity; (iv) indirect control increases extension, whereas direct control increases integrity; and (v) government promotions increase both. These conclusions help understand the substance of the business group phenomenon and clarify the complex business conditions in China, an economy undergoing incremental transition for more than 30 years.

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

Access this article

Log in via an institution

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

  • Amsden, A. (1989) Asia's Next Giant. New York: Oxford University Press.

    Google Scholar 

  • Bae, K., Kang, J. and Kim, J. (2002) Tunneling or value added? Evidence from mergers by Korean business groups. Journal of Finance 57 (6): 2695–2740.

    Article  Google Scholar 

  • Bai, C.E., Liu, Q. and Song, F.M. (2004) Bad News is Good News: Propping and Tunneling Evidence from China. University of Hong Kong, Working Paper.

  • Baek, J.S., Kang, J.K. and Suh Park, K. (2004) Corporate governance and firm value: Evidence from the Korean financial crisis. Journal of Financial Economics 71 (2): 265–313.

    Article  Google Scholar 

  • Carney, M. (2008) The many futures of Asian business groups. Asia Pacific Journal of Management 25 (4): 595–613.

    Article  Google Scholar 

  • Carney, M. and 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.J. (2003) Ownership structure, expropriation and performance of group-affiliated companies in Korea. Academy of Management Journal 46 (2): 238–253.

    Article  Google Scholar 

  • Chang, S.J. and Choi, U. (1988) Strategy, structure and performance of Korean business groups: A transactions cost approach. Journal of Industrial Economics 37 (2): 141–158.

    Article  Google Scholar 

  • Chang, S.J. and Hong, J. (2000) Economic performance of group-affiliated companies in Korea: Intragroup resource sharing and internal business transactions. Academy of Management Journal 43 (3): 429–448.

    Article  Google Scholar 

  • Cheung, Y.L., Rau, P.R. and Stouraitis, A. (2006) Tunneling, propping, and expropriation: Evidence from connected party transactions in Hong Kong. Journal of Financial Economics 82 (2): 343–386.

    Article  Google Scholar 

  • Choi, J.P. and Cowing, T.G. (1999) Firm behavior and group affiliation: The strategic role of corporate grouping for Korean firms – A model of economic growth and Japan's experience. Journal of Asian Economics 10 (2): 195–209.

    Article  Google Scholar 

  • Choo, K., Lee, K., Ryu, K. and Yoon, J. (2009) Changing performance of business groups over two decades: Technological capabilities and investment inefficiency in Korean chaebols. Economic Development and Cultural Change 57 (2): 359–386.

    Article  Google Scholar 

  • Claessens, S., Djankov, S., Fan, J.P.H. and Lang, L.H.P. (1999) Corporate Diversification in East Asia: The Role of Ultimate Ownership and Group Affiliation. Washington DC: World Bank Working Paper.

  • Claessens, S., Djankov, S., Fan, J.P.H. and Lang, L.H.P. (2002) Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance 57 (6): 2741–2771.

    Article  Google Scholar 

  • Dyck, A. (2001) Privatization and corporate governance: Principles, evidence and future challenges. World Bank Research Observer 16 (1): 59.

    Article  Google Scholar 

  • Ferris, S.P., Kim, K.A. and Kitsabunnarat, P. (2003) The costs (and benefits?) of diversified business groups: The case of Korean chaebols. Journal of Banking and Finance 27 (2): 251–273.

    Article  Google Scholar 

  • Frydman, R., Gray, C., Hessel, M. and Rapaczynski, A. (1999) When does privatization work? The impact of private ownership on corporate performance in the transition economies. Quarterly Journal of Economics 114 (4): 1153–1191.

    Article  Google Scholar 

  • Goto, A. (1982) Business groups in a market economy. European Economic Review 19 (1): 53–70.

    Article  Google Scholar 

  • Guillen, M.F. (2000) Business groups in emerging economies: A resource-based view. Academy of Management Journal 43 (3): 362–380.

    Article  Google Scholar 

  • Hoskisson, R.E., Cannella Jr, A.A., Tihanyi, L. and Faraci, R. (2004) Asset restructuring and business group affiliation in French civil law countries. Strategic Management Journal 25 (6): 525–539.

    Article  Google Scholar 

  • Joh, S.W. (2003) Corporate governance and firm profitability: Evidence from Korea before the economic crisis. Journal of Financial Economics 68 (2): 287–322.

    Article  Google Scholar 

  • Johnson, S., La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2000) Tunneling. American Economic Review 90 (2): 22–27.

    Article  Google Scholar 

  • Kali, R. and Sarkar, J. (2005) Diversification, Propping and Monitoring: Business Groups, Firm Performance and the Indian Economic Transition. Mumbai, India: Indira Gandhi Institute of Development Research Working Paper.

  • Kapferer, J.N. (2004) The New Strategic Brand Management. London: Kogan Page.

    Google Scholar 

  • Khanna, T. and Palepu, K. (1997) Why focused strategies may be wrong for emerging markets. Harvard Business Review 75 (4): 41–51.

    Google Scholar 

  • Khanna, T. and Palepu, K. (2000) The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal 43 (3): 268–285.

    Article  Google Scholar 

  • Khanna, T. and Rivkin, J.W. (2006) Inter-organizational ties and business group boundaries: Evidence from an emerging economy. Organization Science 17 (3): 333–352.

    Article  Google Scholar 

  • Kikuchi, H. (2005) Formation and Dissolution of Business Groups, (Kigyo shudan no keisei to kaitai) Tokyo, Japan: Nihon Keizai Hyoronsha.

    Google Scholar 

  • Kock, C.J. and Guillen, M.F. (2001) Strategy and structure in developing countries: Business groups as an evolutionary response to opportunities for unrelated diversification. Industrial and Corporate Change 10 (1): 77–113.

    Article  Google Scholar 

  • La Porta, R., Lopez-De-Silanes, F. and Shleifer, A. (1999) Corporate ownership around the world. Journal of Finance 54 (2): 471–517.

    Article  Google Scholar 

  • La Porta, R., Lopez-De-Silanes, F., Shleifer, A. and Vishny, R. (2000) Agency problems and dividend policies around the world. Journal of Finance 55 (1): 1–33.

    Article  Google Scholar 

  • Lee, K. and He, X. (2009) The capability of the Samsung group in project execution and vertical integration: Created in Korea, replicated in China. Asian Business & Management 8 (3): 277–299.

    Article  Google Scholar 

  • Lee, K., Peng, M.W. and Lee, K. (2008) From diversification premium to diversification discount during institutional transitions. Journal of World Business 43 (1): 47–65.

    Article  Google Scholar 

  • Lee, K., Kim, J.Y. and Lee, O. (2010) Long-term evolution of the firm value and behavior of business groups: Korean chaebols between weak premium, strong discount and strong premium. Journal of the Japanese and International Economies 24 (3): 412–440.

    Article  Google Scholar 

  • Leech, D. and Leahy, J. (1991) Ownership structure, control type classifications and the performance of large British companies. Economic Journal 101 (409): 1418–1437.

    Article  Google Scholar 

  • Leff, N. (1978) Industrial organization and entrepreneurship in the developing countries: The economic group. Economic Development and Cultural Change 26 (4): 661–675.

    Article  Google Scholar 

  • Lemmon, M.L. and Lins, K.V. (2003) Ownership structure, corporate governance and firm value: Evidence from the East Asian financial crisis. Journal of Finance 58 (4): 1445–1468.

    Article  Google Scholar 

  • Lins, K.V. and Servaes, H. (2002) Is corporate diversification beneficial in emerging markets? Financial Management 31 (2): 5–31.

    Article  Google Scholar 

  • Luo, X. and Chung, C.N. (2005) Keeping it all in the family: The role of particularistic relationships in business group performance during institutional transition. Administrative Science Quarterly 50 (3): 404–439.

    Article  Google Scholar 

  • Ma, X., Yao, X. and Xi, Y. (2006) Business group affiliation and firm performance in a transition economy: A focus on ownership voids. Asia Pacific Journal of Management 23 (4): 467–483.

    Article  Google Scholar 

  • Matsusaka, J.G. (2001) Corporate diversification, value maximization and organizational capabilities. Journal of Business 74 (3): 409–431.

    Article  Google Scholar 

  • Meyer, M.W. and Lu, X. (2004) Managing indefinite boundaries: The strategy and structure of a Chinese business firm. Management and Organization Review 1 (1): 57–86.

    Article  Google Scholar 

  • Mitton, T. (2002) A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. Journal of Financial Economics 64 (2): 215–241.

    Article  Google Scholar 

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

    Google Scholar 

  • Morikawa, H. (1992) Zaibatsu. Tokyo, Japan: University of Tokyo Press.

    Google Scholar 

  • National Restructuring Committee and National Economy Committee. (1987) A few opinions on establishing and developing business groups. (Guan yu zu jian he fa zhan qi ye ji tuan de ji dian yi jian)http://www.110.com/fagui/law_67200.html, accessed 10 December 2010.

  • NBSC (National Bureau of Statistics in China). (2009) 2008 Large Business Groups in China, (2008 Zhong guo da qi ye ji tuan) Beijing, China: China Statistics Press.

  • Peng, W., Wei, K.C.J. and Yang, Z. (2006) Tunneling or Propping: Evidence from Connected Transactions in China. Hong Kong University of Science and Technology Working Paper.

  • Penrose, E. (1959) The Theory of Growth of the Firm. New York: John Wiley.

    Google Scholar 

  • Ren, Y. and Ma, Y. (1991) Business Groups: Theory and Practice, (Qi ye ji tuan: Li lun yu shi jian) Beijing, China: China Science Technology Press.

    Google Scholar 

  • Seo, B.K. (2006) Empirical analysis for performance change of grouping strategy in China. Doctoral dissertation, Tsinghua University, Beijing.

  • State Council. (1980) Tentative regulation for promoting economic alliance. (Guan yu tui dong jing ji lian he de zan xing gui ding)http://law.lawtime.cn/d561512566606.html, accessed 10 December 2010.

  • State Council. (1986) Regulations for promoting horizontal economic alliance. (Guan yu jin yi bu tui dong heng xiang jing ji lian he ruo gan wen ti de gui ding)http://www.110.com/fagui/law_1846.html, accessed 10 December 2010.

  • State Council. (1991) Notice of asking instructions on appointing the first set of large-sized pilot business groups. (Guan yu xuan ze yi pi da xing qi ye ji tuan jin xing shi dian qing shi de tong zhi)http://www.fc110.gov.cn/zcfg/bwfg/200909/26725.html, accessed 10 December 2010.

  • State Council. (1997) Opinions on appointing and managing large-sized pilot business groups. (Guan yu shen hua da xing qi ye ji tuan shi dian gong zuo de yi jian)http://www.fc110.gov.cn/zcfg/bwfg/200909/26233.html, accessed 10 December 2010.

  • State Council. (2000) Rules on building modern corporate system and enhancing managing capability in large state-owned enterprises. (Guo you da zhong xing qi ye jian li xian dai qi ye zhi du he jia qiang guan li de ji ben gui fan)http://www.gov.cn/gongbao/content/2000/content_60551.htm, accessed 10 December 2010.

  • Wang, H., Huang, H. and 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 

  • Yiu, D., Bruton, G.D. and Lu, Y. (2005) Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper. Journal of Management Studies 42 (1): 183–206.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Korea Institute for International Economic Policy, China Team, KIEP, 246 Yangjaedaero Seochogu, Seoul, South Korea 137-747, Republic of South Korea

    Philip Pilsoo Choi

  2. School of Economics and Management, Tsinghua University, 225 Shunde, SEM, Beijing, 100084, China

    Xiangdong Ning

Authors
  1. Philip Pilsoo Choi
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Xiangdong Ning
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Philip Pilsoo Choi.

Appendices

Appendix A

Table A1

Table A1 MI of each industry
Full size table

Appendix B

Table B1

Table B1 Appointed pilot groups and their affiliates in our sample
Full size table

Rights and permissions

Reprints and permissions

About this article

Cite this article

Choi, P., Ning, X. Extension and integrity of business groups: Evidence from China. Asian Bus Manage 12, 253–280 (2013). https://doi.org/10.1057/abm.2012.19

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/abm.2012.19

Keywords

Search

Navigation