Showing papers on "Corporate group published in 2019"

State capitalism and performance persistence of business group-affiliated firms: A comparative study of China and India

Abstract: Business groups emerged in developing economies through direct or indirect support from the state in order to overcome a variety of institutional voids and/or to further state objectives of economic growth. However, the efficacy of this organizational form and its associated governance structures have been debated given the dual possibility of business groups to allocate resources among its affiliates for cross-subsidization or winner-picking. We argue that elements of the institutional environment comprising of the state’s approach to organizations and the political context of these interactions vary across countries, thereby influencing business groups’ resource allocation strategies and affecting the persistence of affiliated firms’ superior performance. Contrasting the types of state capitalism in China and India, we develop and test our hypotheses. We find that the effect of business group affiliation on firms’ superior performance persistence is stronger in a state-led system of state capitalism (e.g., China) than in a co-governed system (e.g., India) and that this divergence of the business group effect is weakened as affiliated firms internationalize. Our findings have implications for understanding business groups across institutional contexts and the influence of diversity in the types of state capitalism on organizational strategies.

Internalization advantage and subsidiary performance: The role of business group affiliation and host country characteristics

Abstract: We extend internalization theory by examining the contingencies associated with market internalization and its impact on foreign subsidiary survival. Based on a sample of 6170 subsidiary–year observations in 63 countries belonging to 292 MNCs from Korea during 1995–2013, we find that greater product and labor market internalization have weaker impacts on the survival of subsidiaries operating in countries with more developed institutional environments but stronger for subsidiaries of MNCs affiliated with business groups. The impact of business group affiliation is further dependent on host country institutional development, and the diversification and size of the business group.

Beyond Belgium : the business empire of Edouard Empain in the First Global Economy (1880-1914)

Abstract: By looking through the lens of a global entrepreneur, this dissertation provides insight into a crucial period in world history: the First Global Economy (1870-1914). To tackle the broader issue of the opportunities and limitations in a paradoxical world of economic globalization and political fragmentation, I take an actor-centered approach. The history of the business empire of the Belgian Edouard Empain (1852-1929) elucidates a complex era characterized by globalization and nation-state formation. By focusing on an entrepreneur originating from a small country but transcending boundaries, the possibilities and risks for international business in this period can be studied. Starting in 1880, the business group of Edouard Empain developed into one of the largest in Belgium and became a global player active on four continents. The Empain group mainly invested in public utilities such as transportation and electricity production as well as in electrical engineering. Within this context, this dissertation answers the following question: What strategies did a multinational enterprise from a small country adopt to seize the opportunities and handle the risks of a world characterized by both economic integration and geopolitical rivalry at a global scale? I argue that, to understand the development of international business in the First Global Economy, we need to acknowledge the importance of the following three domains: the geographical and sectoral strategy, the corporate structure, and the business-government relations. To address these issues, this dissertation uses a wide array of archival sources and secondary literature. It combines a comprehensive approach of the more than eighty Empain companies with selected case studies to understand the dynamics of international business. This allows me to argue that Empain developed strategies in the three abovementioned domains to transform the global economic and political challenges into opportunities. First, his investments were the result of an entrepreneurial logic combined with the pursuit of economies of scale and scope. Secondly, the business group form had many advantages, making it an efficient device for investments in the First Global Economy. Thirdly, thanks to the complex interplay between the multinational enterprise, the home country and the host countries, an entrepreneur from a small country could exploit the international political frictions of the late nineteenth-century world to develop a global business empire.

Business Groups and Tunneling: Evidence from Corporate Charitable Contributions by Korean Companies

Abstract: This paper investigates whether corporate philanthropic decisions are associated with a firm’s listing status and business group affiliation. Analyzing a large sample of public and private firms in Korea, we find that (1) public firms make more charitable contributions than private firms and (2) business group-affiliated firms make more charitable contributions than non-affiliated firms. The results suggest that public firms, owing to greater public scrutiny, and business groups, owing to higher political costs, are encouraged to make more corporate charitable contributions. Further, we find that (3) greater corporate giving by public firms than private firms is more pronounced for business group-affiliated firms, compared with non-affiliated firms. The result is consistent with business groups’ strategic coordination of their affiliates’ philanthropic decisions to tunnel business group resources out to controlling shareholders who hold a larger portion of private affiliates than public affiliates.

CSR activities and internal capital markets: Evidence from Korean business groups

Abstract: This study examines the effect of business group structures on corporate social responsibility (CSR) performance of Korean firms. We find that the chaebol affiliation is, on average, positively related to CSR performance. We attribute this phenomenon to two main elements—CSR corporate foundations (or headquarters) and a spillover effect within the chaebol business group. Conversely, family control is found to be negatively associated with CSR performance. Furthermore, we find a positive relation between CSR performance and the firm value measured by Tobin's Q. Our results suggest that CSR headquarters seem to play an important role in improving CSR performance through the efficient allocation of internal resources. Finally, the group-level financial donations, an important CSR activity, seem to have a spillover effect on CSR performance within the business group. This result is consistent with internal capital markets being efficiently utilized by Korean business groups.

Communicating CSR practices – Role of internationalization of emerging market firms

Abstract: Emerging markets suffer from institutional voids, and in such resource deficient economies, corporate social responsibility is given scant attention. However, when firms from emerging markets globalize, international stakeholders become suspicious about firms’ products, services, and business practices. Grounded in the liability of emergingness and legitimacy theory and using a sample of 134 manufacturing firms from one emerging market, India, this study explores how firms’ international diversification intent and market-seeking motives influence emerging markets’ firms communication of socially responsible activities as an attempt to eliminate illegitimacy. Furthermore, the study reveals that business group affiliation enhances the influence of internationalization on firms’ communication of socially responsible activities.

Business group affiliation and foreign subsidiary performance

Abstract: Research Summary Business group (BG) affiliation affects the strategic behavior and performance of firms. Until now it has been theoretically unclear and insufficiently empirically tested whether affiliation advantages extend to the foreign subsidiaries of group members. We attempt to determine if they do, and if so, to identify the boundary conditions that matter. We analyze a large panel of 451 foreign subsidiaries of 136 Indian multinational firms over the 2003–2012 period and find that BG affiliation does enhance foreign subsidiary performance when host‐market institutions are weak and when the parent is in manufacturing. Managerial Summary Our research speaks directly to managers of multinational firms who seek to leverage the benefits of BG affiliation across national borders. We show that BG affiliation is only beneficial when the foreign subsidiary is located in a country characterized by weak institutions and when the parent is in manufacturing. If, on the other hand, the foreign subsidiary is in a country with well‐functioning institutions and the parent in services, managers will not be able to count on BG advantages, rather they will have to develop competitive capabilities locally, that is, the foreign subsidiary will have to function more like a standalone firm.

Corporate Governance Boundary, Debt Constraint, and Investment Efficiency

Abstract: This article examines how the corporate governance boundary affects corporate investment efficiency. The empirical results based on Chinese listed companies suggest that the expansion of the corpor...

Strengthened board monitoring from parent company and stock price crash risk of subsidiary firms

Abstract: This article examines whether and how stronger board monitoring in a parent company influences the stock price crash risk of affiliated subsidiary firms. Using a quasi-natural experiment in China, we empirically document that enhanced board monitoring at the parent company helps reduce crash risk in its subsidiary firms. Three channels of this impact are identified: (i) better corporate governance in the parent company can prevent it from tunneling wealth from the subsidiary firm, (ii) better corporate governance in the parent company helps it better monitor the subsidiary firm, and (iii) better corporate governance in the parent company can spill over to the subsidiary firm and thus constrain managers in the subsidiary firm from misconduct in dealing with negative information.

The Effects of Losing a Business Group Affiliation

Abstract: We propose a novel identification strategy for estimating the effects of business group affiliation. We study two-firm business groups, some of which split up during the sample period, leaving some firms as stand-alone firms. We instrument for stand-alone status using shocks to the industry of the other group firm. We find that firms that become stand-alone reduce leverage and investment. Consistent with collateral cross-pledging, the effects are more pronounced when the other firm had high tangibility. Consistent with capital misallocation in groups, the reduction in leverage is stronger in firms that had low (high) profitability (leverage) relative to industry peers.

Would Firm Performance be Better with Women Directors? Evidence from India:

Abstract: The purpose of this article is to examine the impact of women directors on firm performance of Indian companies and to check the impact after controlling their firm-specific and corporate governance variables. Further, the study explores the impact of women directors on firm performance of group firms and standalone firms. Regression models used in the study reveal that women directors create a positive and significant impact on firm performance as measured by return on assets (ROA) and Tobin’s Q. Further, the study found that the relationship becomes stronger if a firm belongs to the business group. This article adds to the existing literature on gender diversity at the board level, by analysing the impact of women directors on firm performance in the Indian context. This study is the first to examine the aspect of gender diversity in the Indian context.

Improving the financial performance of SMEs: The presence in foreign markets and the moderating role of corporate group and alliance portfolio size

Abstract: The purpose of this paper is to assess the influence of the presence in foreign markets on small- and medium-sized enterprises’ (SMEs) financial performance. Furthermore, it seeks to examine the moderating effect of corporate group and alliance portfolio size on this relationship.,First, the authors develop hypotheses concerning the relationship between the presence in foreign markets and SMEs’ financial performance as well as the moderating role of the size of an SME’s corporate group and alliance portfolio. Afterward, the authors used ordinary least square regression to the test the hypotheses based on a sample of 5,885 high-tech US SMEs registered in the Orbis database (Bureau van Dijk).,Results of the study reveal that the presence in foreign markets is positively associated with an SME’s financial performance, with the size of the corporate group enhancing this relationship, hence confirming the conjectures. Instead, the size of the alliance portfolio appears to not exert any moderating effect, in contrast with the last hypothesis.,Form a theoretical perspective, the authors dig into the literature assessing the performance outcomes of SMEs and contingent effects of the possibility to tap into external resources of other firms. By so doing, the findings support a specific stream of the literature in claiming the positive effects deriving from being part of a corporate group. Conversely, the findings seem to go in the opposite direction of the majority of the literature that claim a positive impact of alliances on financial performances, while supporting those studies stressing that alliances pose significant challenges for SMEs and should be carefully identified and managed.

Corporate law and corporate control in West Germany after 1945

Abstract: According to the ‘Varieties of Capitalism’ and ‘Law and Finance’ approaches, legal institutions regulating corporate finance and governance shape specific national varieties of capitalism. ...

Coordination, control, or charade? The role of board interlocks among business group members

Abstract: How do business groups manage their internal processes? The purpose of this paper is to explore how board interlocks between members serve as control and coordination mechanisms within business groups. The authors propose that centrality of groups’ affiliates in the group network of interlocking directorates is shaped by agency and resource dependence forces. In particular, the authors examine the role of international board ties as a resource and information conduit.,This study leverages proprietary information on firm-to-firm transaction ties among all 155 affiliates belonging to a large Italian business group. The authors use network analysis to develop multiple measures of the centrality of each group member, and link these to resource transactions, ownership patterns and geographic distributions. The authors test the hypotheses in a structural equation model using LISREL.,The results demonstrate that both resource exchanges and the presence of cross-national relations increase an affiliate’s central position in the group’s network of board ties. In contrast, ownership ties between members were unrelated to affiliate centrality.,Internal governance mechanisms of business groups are rarely studied. While groups are often portrayed as inefficient or value-destroying, the analysis of proprietary firm data suggests a very different scenario: inter-unit ties are much more supportive of a model of business groups as strategic portfolios, using internal ties to share information and resources.

Research on the Differentiated Impact Mechanism of Parent Company Shareholding and Managerial Ownership on Subsidiary Responsive Innovation: Empirical Analysis Based on ‘Principal–Agent’ Framework

Abstract: Under the dynamic competition situation, the innovation competition interaction between enterprises will take the form of mutual responding, while the formulation and implementation of responsive innovation strategy will be influenced by both shareholders and managers in the principal–agent relationship. In our research, we try to understand how the difference of governance logic between shareholders and managers affects innovation interaction strategy of enterprises. In order to achieve this research goal, this study takes all eligible listed companies (from 2007 to 2016) in China’s stock market as samples. The results show that the parent company shareholding has a negative impact on the subsidiary responsive innovation, while companies whose managers hold more shares select the relatively positive strategy responsive innovation. Moreover, the degree of separation between ownership and control rights and the external institutional environment can moderate the above relationship. Relevant conclusions can provide some reference value for the formulation of responsive innovation decision of listed companies and provide new insights for the design of parent–subsidiary corporate governance structure and the design of managerial equity incentive mechanism in the context of corporate group governance.

The relationship of corporate governance, corporate social responsibilities and corporate financial performance in one continuum

Abstract: This study aims to identify the impact of Good Corporate Governance, represented by institutional ownership and managerial ownership, on Corporate Social Responsibility and Corporate Financial Performance.It examines 126 manufacturing companies listed at the Indonesian Stock Exchange (IDX) and have issued audited financial statements for 2006. The statistical method used to test the hypothesis is Path Analysis. The main results suggest that Good Corporate Governance has effects on both Corporate Social Responsibility and Corporate Financial Performance whereas Corporate Social Responsibility has significant effects on Corporate Financial Performance. The other results regarding controlling variables suggest that CEO Tenure, has significant effects on Corporate Social Responsibility. Yet, there is no strong evidence to support that types of industry serve as an influencing factor on Corporate Social Responsibility as well as no influence of Corporate Secretary and Nomination and Remuneration Committee on Corporate Financial Performance. Keyword: corporate governance, corporate social responsibilities, corporate financial performance, Tobin's Q, institutional ownership, managerial ownership.

Social tie heterogeneity and firms' networking strategy

Abstract: The social ties of the owners, directors, and managers of firms have cross-level effects on firms’ network development. Firms can develop affiliations with a business group and connections across b...

Neutrality as Tax Justice: The Case of Common Consolidated Corporate Tax Base under the EU Law

Abstract: The tax neutrality principle was defined as a tax system not influencing the taxpayers’ business decisions. Economists usually use ‘the no tax world’ as the baseline to decide if a specific tax measure is ‘neutral. If a taxpayer’s reaction to a specific tax is the same as if there is no such tax, then it is neutral. Such formulation of tax neutrality is inappropriate to evaluate taxation in a regional market as European Union. This paper establishes a new normative framework for evaluating the EU corporate tax law reform project, the Common Consolidated Corporate Tax Base (CCCTB) Proposal, that aims to properly tax MNE taxpayers’ cross-border income by a pre-decided formula. The tax neutrality principle should be not be based on the no-tax baseline but interpreted as ‘faithfully reflecting the taxpayers’ economic activities throughout EU’. EU Member States should maintain proper fiscal autonomy to decide their actual administration inputs (the public benefit provided) and their own method to implement the EU level corporate group taxation (the subsidiarity principle). This trio-formulated neutrality concept falls between Rawls’ liberalism theory and Nozick’s libertarianism theory, closer to Liam Murphy and Thomas Nagel’s tax justice theory. Such trio-combination also better regulates the interactions of the three actors in the EU internal market: EU, Member States and MNE taxpayers. This reformed neutrality is a more appropriate norm than one single economic or legal principle for the EU corporate tax reform.

Принципы организации и структура системы управления компанией холдингового типа

Abstract: One of the main tasks of building an effective management structure for a group of companies of the holding type has been designated− it is the harmonization of the interests of top management and owners. The experience of improving the management systems of a number of really active groups of companies and diversified enterprises (including the sector of aviation and rocket engine building) focused on both scientific and technical, and production and commercial business, has been taken into account. Options for organizational structures of the group of companies have been considered. Attention has been drawn to the fact, that the choice of a variant of the structure of a group of companies should be the result of the agreements, reached between the decision-making center, investors and the top management of the management company. The basic functions of the basic elements of the structural bush of a group of companies have been formulated. In the multi-project management paradigm, the methodology of structure synthesis and the development of basic procedures for the management system of a holding-type group of companies have been considered, and the basic canonical structure of the management company and the project management apparatus of the production-scientific-commercial group of companies has been proposed, which includes two the main management units: the earning wing and the serving (control and analytical) wing. The features of the functioning of such key management units of the executive office and commercial management as analytical group, plan development and control group and market measurement group, have been considered. The importance of the vocational guidance component of the Directorate of Personnel Management, based on psychodiagnostic methods, has been noted. The basic functions of the management departments of the management company have been formulated, and the procedures for interaction between them have been enumerated in detail. The requirements for key management company personnel have been noticed. The option of material incentives for employees at the stage of promotion of the business unit has been proposed. It has been especially noted, that when making a decision on the improvement of existing management systems in enterprises, both technical and historical features of the realities in these corporations (enterprises) should be carefully considered.

Emerging market business groups and firm risk: Effects of internal capital markets, corporate governance and capital structure

Abstract: This thesis examines an important yet largely unexplored inner-workings of business group affiliation in emerging economies by exploring firm risk of group affiliates in comparison to their non-group firms. Using data for seven financial years the analysis focused on group affiliated firms and non-group firms in India, one of the largest emerging economies. The study is done in three phases. In the first study, the impact of business group affiliation on firm risk relative to non-group firms is examined. Followed by analysing if the difference between risk-taking by business-group affiliated firms and non-group firms depends on the relative size, sales revenue and cash flow of a firm within a business group, and finally on the relative bankruptcy risk of a firm. The second study extended the analysis by examining the impact of corporate governance on risk-taking, and the difference in the impact of these corporate governance variables between business group affiliated and non-group firms. The proxies for corporate governance include a wide range of board characteristics. Finally, the study extended the modelling of firm-level risk by considering the two-way relationship between risk and capital structure using a structural equation modelling (SEM) framework.

Groups of Companies

Abstract: A multinational corporate group is an enterprise that operates in more than one country through more entities—a parent company and few or many subsidiary companies—which have separate legal personality.

Market distance and insider-ownership strategies: a resource-dependence perspective

Abstract: Purpose Ownership issues are an important feature of corporate governance when firms focus on global expansion in multiple and diverse regions. Drawing on resource dependence theory (RDT), the purpose of this paper is to address the phenomenon regarding the extent to which international market distance affects equity stakes in group-affiliated firms held by business group headquarters. Design/methodology/approach This study uses longitudinal data on foreign direct investments by 106 business groups (BGs), including 561 group-affiliated firms, from Taiwan over a five-year period from 2006 to 2010. Findings The results show that the equity stakes of the BG headquarters in the group-affiliated firms in foreign markets were positively associated with the geographic distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms, the cultural distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms and institutional distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms. Research limitations/implications Most studies of corporate governance and international business are based on a transaction cost economics approach, a resource-based perspective and agency and institutional theories. In contrast, this study, by using RDT, provides an alternative explanation regarding the factors that affect the equity stakes of parent firms in group-affiliated firms. Practical implications This study presents two basic pieces of advice for consideration. First, at the managerial level, group-affiliated firms should develop their own resources and capabilities in order to become more autonomous in pursuing advantageous international activities that the parent firms may not foresee. Second, and again at the managerial level, business group headquarters should adopt a strategy to balance the dependency relationship between group-affiliated firms and business group headquarters. Originality/value This study provides the most finely grained analysis, to date, regarding how international market distance affects business group headquarters from newly industrialized economies in terms of diverse equity stakes in foreign affiliates, the unique attributes of BGs and international market distances’ relationship with both the operations and the expansion opportunities of BGs.