Abstract
This paper examines the moderating impact of state ownership and group
control mechanisms on the relationship between diversification and
performance of companies affiliated with large business groups in
China. We find that the state ownership has enhanced the performance
of group affiliated companies when they adopted higher degrees of
diversification. We also find that cash flow rights have a positive
impact on the performance of companies with lower degrees of diversification
while in general group control rights have a negative impact on the
performance. These results suggest that a group's control mechanisms,
derived from pyramid ownership structures, enable the dominant owners
to expropriate the value from minority shareholders or tunnel corporate
resources for their own interest. © Springer Science+Business Media,
LLC 2006.
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