Are group-affiliated firms really more profitable than nonaffiliated?
Small Business Economics, 22 (5):
391-405 (2004)Abstract
The role of corporate center in influencing the economic performance
of business units has been a central research topic in the industrial
organization and strategic management literature. A common finding
is the limited corporate and business group effects. Recently, an
emerging line of studies argues that the market inefficiencies and
institutional voids in emerging markets can be overcome more efficiently
by large diversified business groups than by nongroup small firms.
Some empirical evidence also shows that non-group small firms are
significantly less profitable than group-affiliated firms. This paper
raises this issue by empirically investigating the influence of group
affiliation on the return on assets and Tobin's q of 340 group-affiliated
firms versus 423 non-group firms in Taiwan, during the period of
1997-1999. The statistical results show that group affiliation can
not always create value for member firms. The size of the business
group matters. When affiliated with the largest business groups,
member firms indeed show improved stock market performance, but when
firms are affiliated with small- and medium-sized groups, their accounting
performance suffers. Findings of this paper suggest a threshold effect
and a U-shape relationship between group affiliation and profitability
in emerging economies.