Diversification and Economic Performance: An Empirical Assessment of Chinese Firms

Integrating the impact of both resource and institutional factors and taking into consideration potential agency problems, this study proposes to investigate the joint effect of both related and unrelated diversification strategies on firm performance in an emerging economy setting and to assess empirically the hypothesized relationship using Chinese firms. The empirical results support the basic contention that both resource building and utilization through concentration and related diversification and institutional environmental management through unrelated diversification are important for firm performance in emerging economies but they must be considered together. This paper concludes with a discussion of its contributions, practical implications, and directions for future research.

[1]  Douglas D. Moesel,et al.  CONSTRUCT VALIDITY OF AN OBJECTIVE (ENTROPY) CATEGORICAL MEASURE OF DIVERSIFICATION STRATEGY , 1993 .

[2]  Margaret A. Peteraf.  The cornerstones of competitive advantage: A resource‐based view , 1993 .

[3]  J. Jaccard,et al.  Interaction effects in multiple regression , 1992 .

[4]  Jean‐Franois Hennart.  THE ‘COMPARATIVE INSTITUTIONAL’ THEORY OF THE FIRM: SOME IMPLICATIONS FOR CORPORATE STRATEGY* , 1994 .

[5]  Caron H. St. John,et al.  A methodological note on diversity measurement , 1994 .

[6]  Race for the World: Strategies to Build a Great Global Firm , 1999 .

[7]  Jan W. Rivkin,et al.  Estimating the performance effects of business groups in emerging markets , 2001 .

[8]  Jack R. Borsting,et al.  Decision-Making at the Top , 1982 .

[9]  R. Rumelt.  Strategy, structure, and economic performance , 1974 .

[10]  H. Ansoff.  Corporate strategy : an analytic approach to business policy for growth and expansion , 1965 .

[11]  Shan Li,et al.  A Theory of Corporate Scope and Financial Structure , 1996 .

[12]  D. Hambrick,et al.  Managerial discretion: A bridge between polar views of organizational outcomes. , 1987 .

[13]  W. Scott,et al.  Institutions and Organizations. , 1995 .

[14]  T. Khanna,et al.  Why Focused Strategies May Be Wrong for Emerging Markets , 1997 .

[15]  L. Vogel,et al.  Strategy and Structure , 1986 .

[16]  Sidney L. Barton,et al.  CORPORATE STRATEGY AND CAPITAL STRUCTURE , 1988 .

[17]  Qiwen Lu,et al.  China's Leap into the Information Age: Innovation and Organization in the Computer Industry , 2000 .

[18]  Richard Whitley,et al.  Divergent Capitalisms: The Social Structuring and Change of Business Systems , 1999 .

[19]  Atulya Sarin,et al.  Agency Problems, Equity Ownership, and Corporate Diversification , 1997 .

[20]  Andrew Campbell,et al.  Parenting in Complex Structures , 2002 .

[21]  Constantinos C. Markides,et al.  Diversification, restructuring and economic performance , 1995 .

[22]  C. Oliver.  SUSTAINABLE COMPETITIVE ADVANTAGE: COMBINING INSTITUTIONAL AND RESOURCE- BASED VIEWS , 1997 .

[23]  T. Khanna,et al.  The Future of Business Groups in Emerging Markets: Long Run Evidence from Chile , 1998 .

[24]  Gregory G. Dess,et al.  Conducting and Integrating Strategy Research at the International, Corporate, and Business Levels: Issues and Directions , 1995 .

[25]  David J. Miller,et al.  The Resource-Based View of the Firm in Two Environments: The Hollywood Film Studios From 1936 to 1965 , 1996 .

[26]  Shorey Peterson,et al.  The Modern Corporation and Private Property. , 1933 .

[27]  E. Fama,et al.  Separation of Ownership and Control , 1983, The Journal of Law and Economics.

[28]  C C Markides.  To diversify or not to diversify. , 1997, Harvard business review.

[29]  Masahiko Aoki,et al.  Information, Corporate Governance, and Institutional Diversity: Competitiveness in Japan, the USA, and the Transitional Economies , 2001 .

[30]  Vasudevan Ramanujam,et al.  Research on corporate diversification: A synthesis , 1989 .

[31]  Cynthia A. Montgomery,et al.  The Measurement of Firm Diversification: Some New Empirical Evidence , 1982 .

[32]  Belén Villalonga.  Does Diversification Cause the 'Diversification Discount'? , 2000 .

[33]  H. Blalock.  THEORY BUILDING AND THE STATISTICAL CONCEPT OF INTERACTION. , 1965, American sociological review.

[34]  Abdul A. Rasheed,et al.  Diversification and Performance: Critical Review and Future Directions* , 1991 .

[35]  O. C. Herfindahl.  Concentration in the steel industry , 1950 .

[36]  G. Bruton,et al.  China's township and village enterprises: Kelon's competitive edge , 2000 .

[37]  John A. Pearce,et al.  Concentrated growth strategies , 1990 .

[38]  C. Hill,et al.  A longitudinal study of the cause and consequences of changes in diversification in the U.S. pharmaceutical industry 1977–1986 , 1991 .

[39]  J. Barney.  Firm Resources and Sustained Competitive Advantage , 1991 .

[40]  Michael Goold,et al.  Why diversify? Four decades of management thinking , 1993 .

[41]  D. North.  Institutions, Institutional Change and Economic Performance: Economic performance , 1990 .

[42]  K. Palepu.  Diversification strategy, profit performance and the entropy measure , 1985 .

[43]  E. Penrose.  The theory of the growth of the firm twenty-five years after , 1960 .

[44]  William Acar,et al.  The myth of the unique decomposability: specializing the Herfindahl and entropy measures? , 1999 .

[45]  E. Pedhazur.  Multiple Regression in Behavioral Research: Explanation and Prediction , 1982 .

[46]  M. C. Jensen,et al.  THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE , 1976 .

[47]  Jacob Cohen,et al.  Applied multiple regression/correlation analysis for the behavioral sciences , 1979 .

[48]  A. Jacquemin,et al.  Entropy Measure of Diversification and Corporate Growth , 1979 .

[49]  Andrew Campbell,et al.  Corporate-Level Strategy: Creating Value in the Multibusiness Company , 1994 .

[50]  K. Ramaswamy,et al.  Foreign Investors, Foreign Directors and Corporate Diversification: An Empirical Examination of Large Manufacturing Companies in India , 2001 .

[51]  A. V. D. Ven,et al.  Central perspectives and debates in organization theory. , 1983 .

[52]  K. Eisenhardt.  Agency Theory: An Assessment and Review , 1989 .

[53]  E. Trist,et al.  The Causal Texture of Organizational Environments , 1965 .

[54]  T. Khanna,et al.  Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups , 2000 .

[55]  Laura B. Cardinal,et al.  Curvilinearity in the diversification–performance linkage: an examination of over three decades of research , 2000 .

[56]  N. Dawar,et al.  Competing with giants. Survival strategies for local companies in emerging markets. , 1999, Harvard business review.

[57]  D. Teece,et al.  Fundamental Issues in Strategy: A Research Agenda , 1994 .

[58]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[59]  C. Hill,et al.  Internal Capital Market Controls and Financial Performance in Multidivisional Firms , 1988 .

[60]  Karl V. Lins,et al.  Is Corporate Diversification Beneficial in Emerging Markets? , 2001 .

[61]  B. Chakravarthy.  Measuring strategic performance , 1986 .

[62]  J. L. Stimpert,et al.  IN THE EYES OF THE BEHOLDER: CONCEPTUALIZATIONS OF RELATEDNESS HELD BY THE MANAGERS OF LARGE DIVERSIFIED FIRMS , 1997 .

[63]  Z. Mi,et al.  Agency cost and the crisis of China's soe , 2000 .

[64]  Michael A. Hitt,et al.  Downscoping: How to Tame the Diversified Firm , 1994 .

[65]  Cynthia A. Lengnick-Hall,et al.  Similarities and contradictions in the core logic of three strategy research streams , 1999 .

[66]  Hugh Courtney,et al.  20/20 foresight : crafting strategy in an uncertain world , 2001 .

[67]  S. West,et al.  Multiple Regression: Testing and Interpreting Interactions. , 1994 .

[68]  Mingfang Li,et al.  The moderating effect of environmental dynamism on the ownership and performance relationship , 1998 .

[69]  R. H. Waterman,et al.  In search of excellence : lessons from America's best-run companies , 1983 .

[70]  Robert E. Hoskisson,et al.  Strategy in Emerging Economies , 2000 .

[71]  Xielin Liu,et al.  Transition Trajectories for Market Structure and Firm Strategy in China , 2001 .

[72]  Michael A. Hitt,et al.  Antecedents and Performance Outcomes of Diversification: A Review and Critique of Theoretical Perspectives , 1990 .

[73]  C. Prahalad,et al.  Competing for the Future , 1994 .

[74]  Henri Servaes,et al.  International Evidence on the Value of Corporate Diversification , 1999 .

[75]  Daniel Shapiro,et al.  Management and ownership effects: evidence from five countries , 1998 .

[76]  C. Prahalad,et al.  The Core Competence of the Corporation , 1990 .

[77]  Mike W. Peng,et al.  Business strategies in transition economies , 2001 .

[78]  Constantinos C. Markides,et al.  Diversification, Refocusing, and Economic Performance , 1996 .