Abstract
Purpose: This paper aims to explore the roles different ownership
structures, the joint effect of related and unrelated diversification
strategies, and previous performance levels have on the restructuring
strategies of such firms. Design/methodology/approach: Annual reports
of publicly traded firms in the two Chinese stock exchanges are used
to collect data. Multiple regression and ANOVA analysis are used
to examine the impact of ownership structure types, match between
diversification strategies, and previous performance on the change
of business scopes of the sample business groups. Findings: Compared
to other ownership types, government owned business groups tend to
increase their business scope during asset restructuring, while private
business groups tend to decrease their scopes through divestitures
and spinoffs. Poor previous performance is also found to be negatively
related to change in business scopes. The "match" between related
and unrelated diversification strategies of the business groups leads
to increase in business scopes, while "mismatch" between these two
strategies tends to lead to decrease in business scopes. Practical
implications: This study provides some recommendations to managers
and public policy makers in emerging economies. There is a need to
monitor the changing institutional environment a firm operates in.
It is up to the managers of business groups to determine the degree
of market imperfections they are facing and the need to compensate
with internal market mechanism and social exchange mechanism within
the group structure. As China opens its door further to private ownership
and foreign ownership, the pressure to increase efficiency and effectiveness
along with the continuous improvement of the institutional environment
will require that managers adopt strategies that can enhance the
competitiveness of the firms, whether it is through further diversification
or scope reduction. Originality/value: This research deepens our
understanding of restructuring strategies of Chinese business groups,
by linking factors such as ownership structure, diversification strategies,
and past performance to scope changes in these groups. It can broaden
our understanding of corporate restructuring in transitional economies,
such as China and India. © Emerald Group Publishing Limited.
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