Top

Journal of Management and Governance

Published in:

15-02-2019

Business group diversification, financial constraints and firm performance: the case of Tunisian group affiliated firms

Authors: Dorra Ellouze, Khadija Mnasri

Published in: Journal of Management and Governance | Issue 1/2020

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

In this paper, we analyze the effect of business group diversification on firms’ performance and we examine whether this effect is particularly relevant for financially constrained firms. We assess these relations using a unique hand-collected database of 67 Tunisian non-financial firms affiliated with business groups during the period of 1998–2016. We provide evidence that there is a quadratic U-shaped relationship between group diversification and firms’ performance (measured by the return on assets and the Tobin’s Q ratios), suggesting that group diversification enhances affiliated firms’ performance only if it exceeds a certain threshold. Our results also show that a high level of business group diversification is particularly beneficial for firms that suffer financial constraints.

previous article Context, culture and control: a case study on accounting change in an Italian regional health service

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

Ansoff, H. I. (1957). Strategies for diversification. Harvard Business Review,35, 113–124.

Ansoff, H. L. (1976). La Estrategia de la Empresa. Pamplona: Universidad de Navarra. (Original translation: Corporate Strategy. McGraw-Hill, New York, 1965).

Bamiatzi, V., Cavusgil, S. T., Jabbour, L., & Sinkovics, R. R. (2014). Does business group affiliation help firms achieve superior performance during industrial downturns? An empirical examination. International Business Review,23, 195–211.CrossRef

Binks, M., & Ennew, C. (1996). Growing firms and the credit constraint. Small Business Economics,8, 17–25.CrossRef

Borda, A., Geleilate José-Mauricio, G., Newburry, W., & Kundu, S. K. (2017). Firm internationalization, business group diversification and firm performance: The case of Latin American firms. Journal of Business Research,72, 104–113.CrossRef

Brown, M., & Laverick, S. (1994). Measuring corporate performance. Long Range Planning,27, 89–98.CrossRef

Campbell, J.P. (1977). On the nature of organizational effectiveness. In P.S. Goodman, J.M. Pennings, & associates, New perspectives on organizational effectiveness(pp. 13–55). San Francisco: Jossey-Bass.

Canney, M., Gedajlovic, E. R., Heugens, P. P. M. A. R., Essen, M. V., & Ooesterhout, J. V. (2011). Business group affiliation, performance, context and strategy: A meta-analysis. Academy of Management Journal,54, 437–460.CrossRef

Carreira, C., & Silva, F. (2012). Where are the fragilities? The relationship between firms’ financial constraints, size, and age. In Chapter 10 in Managing structural changes-trends and requirements (Vol. 1, pp. 184–198).

Carton, R. B., & Hofer, C. W. (2006). Measuring organizational performance. Chelthenam, UK, Edward Elgar: Metrics for entrepreneurship in strategic management research.CrossRef

Chacar, A., & Vissa, B. (2005). Are emerging economies less efficient? Performance persistence and the impact of business group affiliation. Strategic Management Journal,10, 933–946.CrossRef

Chakrabarti, A., Singh, K., & Mahmood, I. (2007). Diversification and performance: evidence from East Asian firms. Strategic Management Journal,28, 101–120.CrossRef

Chang, S. J., & Choi, U. (1988). Strategy, structure and performance of Korean business groups: A transactions cost approach. Journal of Industrial Economics,37, 141–158.CrossRef

Chang, S., Chung, C., & Mahmood, I. (2006). When and how does business group affiliation promote firm innovation? A tale of two emerging economies. Organization Science,17, 637–656.CrossRef

Chatterjee, S., & Wernerfelt, B. (1991). The link between resources and type of diversification: Theory and evidence. Strategic Management Journal,12, 33–48.CrossRef

Chittoor, R., Kale, P., & Puranam, P. (2014). Business groups in developing capital markets: Towards a complementarily perspective. Strategic Management Journal,36, 1277–1296.CrossRef

Claessens, S., Djankov, S., & Lang, L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance,57, 2741–2771.CrossRef

Cohen, J., Cohen, P., West, S. G., & Aiken, L. S. (2003). Applied multiple regression/correlation analysis for the behavioral sciences (3rd ed.). London: LEA Publishers.

Denis, D., Denis, D., & Yost, K. (2002). Global diversification, industrial diversification, and firm value. Journal of Finance,57, 1951–1979.CrossRef

Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal,27, 637–657.CrossRef

Elango, B., Chinmay, P., & Jamie, W. R. (2016). Do business group characteristics matter? An exploration on the drivers of performance variation. Journal of Business Research,69, 3205–3212.CrossRef

Ellouze, D., & Mnasri, K. (2018). Risk taking behavior of family firms: Evidence from Tunisia. International Journal of Entrepreneurship and Small Business, Special Issue on risk-taking and investment, Forthcoming.

Fazzari, S. M., Hubbard, R. G., & Petersen, B. C. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity,1, 141–195.CrossRef

Ford, J. D., & Schellenberg, D. A. (1982). Conceptual issues of linkage in the assessment of organizational performance. Academy of Management Review,7, 49–58.CrossRef

Gaur, A. S., & Kumar, V. (2009). International diversification, business group affiliation and firm performance: Empirical evidence from India. British Journal of Management,20, 172–186.CrossRef

Ghemawat, P., & Khanna, T. (1998). The nature of diversified business groups: A research design and two case studies. Journal of Industrial Economics,46, 35–61.CrossRef

Gopalan, R., Nanda, V., & Seru, A. (2007). Affiliated firms and financial support: evidence from Indian business groups. Journal of Financial Economics,86, 759–795.CrossRef

Guillen, M. (2000). Business groups in emerging economies: A resource-based view. Academy of Management Journal,43, 362–380.

Gunduz, L., & Tatoglu, E. (2003). A comparison of the financial characteristics of group affiliated and independent firms in Turkey. European Business Review,15, 48–54.CrossRef

Hernández-Trasobaresa, A., & Galve-Górriz, C. (2017). Diversification and family control as determinants of performance: A study of listed business groups. European Research on Management and Business Economics,23, 46–54.CrossRef

Hoskisson, R. E., Cannella, A. A., Tihanyi, L., & Faraci, R. (2004). Asset restructuring and business group affiliation in French civil law countries. Strategic Management Journal,25, 525–539.CrossRef

Hoskisson, R. E., Johnson, R. A., Tihanyi, L., & White, R. E. (2005). Diversified business groups and corporate refocusing in emerging economies. Journal of Management,31, 941–965.CrossRef

Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review,90, 22–27.CrossRef

Johnson, G., Scholes, K., & Whittingtton, R. (2006). Exploring corporate strategy (7th ed.). New York: Prentince Hall.

Kanter, R. M., & Brinkerhoff, D. (1981). Organizational performance: Recent developments in measurement. Annual Review of Sociology,7, 322–349.CrossRef

Karabag, S. F., & Berggren, C. (2014). Antecedents of firm performance in emerging economies: Business groups, strategy, industry structure, and state support. Journal of Business Research,67, 2212–2223.CrossRef

Kaulich, F. (2012). Diversification versus specialization as alternative strategies for economic development: Can we settle a debate by looking at the empirical evidence? United Nations Industrial Development Organization (UNIDO), Vienna.

Kedia, B. L., Mukherjee, D., & Lahiri, S. (2006). Indian business groups: Evolution and transformation. Asia Pacific Journal of Management,23, 559–577.CrossRef

Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review,75, 41–51.

Khanna, T., & Palepu, K. (2000a). The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal,43, 268–285.

Khanna, T., & Palepu, K. (2000b). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance,14, 867–891.CrossRef

Khanna, T., & Rivkin, J. (2001). Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22, 45–74. (Winner of Academy of Management. Business Policy and Strategy Division, Best Paper Award presented by Academy of Management.)

Kim, Y., & Lui, S. S. (2015). The impacts of external network and business group on innovation: Do the types of innovation matter? Journal of Business Research,68, 1964–1973.CrossRef

Kranenburg, H., Hagedoorn, J., & Pennings, J. (2004). Measurement of international and product diversification. Publishing Industry Journal of Media Economics,17, 4227–4264.

Lang, L. H. P., & Stulz, R. M. (1994). Tobin’s Q, corporate diversification, and firm performance. Journal of Political Economy,102, 1248–1280.CrossRef

Leff, N. (1978). Industrial organization and entrepreneurship in the developing countries: The economic groups. Economic Development and Cultural Change,26, 661–675.CrossRef

Lensink, R., & Molen, R. (2010). Does group affiliation increase firm value for diversified groups? New evidence from Indian companies. Journal of Empirical Finance,17, 332–344.CrossRef

Lins, K., & Servaes, H. (2002). Is corporate diversification beneficial in emerging markets? Financial Management,31, 5–32.CrossRef

Loderer, C.F., & Waelchli, U. (2009). Firm age and performance. SSRN working paper.

Mahmood, I. P., Zhu, H., & Zajac, E. J. (2011). Where can capabilities come from? Network ties and capability acquisition in business groups. Strategic Management Journal,32, 820–848.CrossRef

Manikandan, K. S., & Ramachandran, J. (2015). Beyond institutional voids: Business groups, incomplete markets, and organizational form. Strategic Management Journal,36, 598–617.CrossRef

March, J. G., & Sutton, R. I. (1997). Organizational performance as a dependent variable. Organization Science,8, 698–706.CrossRef

Martin, J. D., & Sayrak, A. (2003). Corporate diversification and shareholder value. Journal of Corporate Finance,9, 37–57.CrossRef

Montgomery, C.A. (1979). Diversification, market structure and firm performance: An extension of Rumelt’s model. Ph.D. Dissertation, Purdue University.

Montgomery, C. A. (1982). The measurement of firm diversification: Some new empirical evidence. The Academy of Management Journal,25, 299–307.

Müller, E., & Zimmermann, V. (2009). The importance of equity finance for R&D activity—Are there differences between young and old companies? Small Business Economics,33, 303–318.CrossRef

Mursitama, T. M. (2006). Creating relational rents: The effect of business groups on affiliated firms’ performance in Indonesia. Asia Pacific Journal of Management,23, 537–557.CrossRef

Nathanson, D., & Cassano, J. (1982). Organization, diversity, and performance. The Wharton Magazine, Summer, 19–26.

Nayyar, P. R. (1992). On the measurement of corporate diversification strategy: Evidence from large U.S. service firms. Strategic Management Journal,13, 219–235.CrossRef

Nelson, R. R., & Winter, S. J. (1982). An evolutionary theory of economic change. Cambridge: Harvard University Press.

Nguyen, P. (2011). Corporate governance and risk-taking: Evidence from Japanese firms. Pacific-Basin Finance Journal,19, 278–297.CrossRef

Orlitzky, M., Schmidt, F., & Rynes, S. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies,24, 403–441.CrossRef

Osakwe, P.N. (2007). Foreign aid, resources and export diversification in Africa: A new test of existing theories. United Nations Economic Commission for Africa, African Trade Policy Center.

Palepu, K. (1985). Diversification strategy, profit performance and the entropy measure. Strategic Management Journal,6, 239–255.CrossRef

Palich, L. E., Cardinal, L. B., & Miller, C. (2000). Curvilinearity in the diversification performance linkage: An examination of over three decades of research. Strategic Management Journal,21, 155–174.CrossRef

Penrose, E. (1959). The theory of the growth of the firm. London: Basil Blackwell.

Perotti, E. C., & Gelfer, S. (2001). Red barons or robber barons? European Economic Review,45, 1601–1617.CrossRef

Pitts, R. A., & Hopkins, H. D. (1982). Firm diversity: Conceptualization and measurement. The Academy of Management Review,7, 620–629.CrossRef

Prahalad, C. K., & Bettis, R. A. (1986). The dominant logic: A new linkage between diversity and performance. Strategic Management Journal,7(6), 485–501.CrossRef

Robins, J., & Wiersema, M. (1995). A resource-based approach to the multibusiness firm: Empirical analysis of portfolio interrelationships and corporate financial performance. Strategic Management Journal,16, 277–299.CrossRef

Rumelt, R. P. (1974). Strategy, structure and economic performance. Cambridge: Harvard University Press.

Schmid, T., Achleitner, A. K., Ampenberger, M., & Kaserer, C. (2014). Family firms and R&D behavior—New evidence from a large-scale survey. Research Policy,43, 233–244.CrossRef

Shyu, J. (2013). Ownership structure, capital structure, and performance of group affiliation: Evidence from Taiwanese group-affiliated firms. Managerial Finance,39, 404–420.CrossRef

Subbady, R. (2010). Editor’s comments: Construct clarity in theories of management and organization. Academy of Management Review,35, 346–357.

Teece, D. J. (1970). Economics of scope and the scope of an enterprise. Journal of Economic Behavior and Organization,1, 223–247.CrossRef

Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2005). Crafting and executing strategy. The quest for competitive advantage, concepts and cases. Pennsylvania: McGraw-Hill/Irwin.

Varadarajan, P. R., & Ramanujam, V. (1987). Diversification and performance: A reexamination using a two dimensional conceptualization of diversity in firms. Academy of Management Journal,30, 380–393.

Venkatraman, V. N., & Grant, J. H. (1986). Construct measurement in organizational strategy research: a critique and proposal. Academy of Management Review,11, 71–87.CrossRef

Venkatraman, V. N., & Ramanujam, V. (1986). Measurement of business performance: a comparison of approaches. Academy of Management Review,11, 801–814.CrossRef

Venkatraman, V. N., & Ramanujam, V. (1987). Measurement of business economic performance: an examination of method convergence. Journal of Management,13, 109–123.CrossRef

Villalonga, B. (2004). Does diversification cause the ‘diversification discount’? Financial Management,33, 5–27.

Whited, T. M. (2001). Is it inefficient investment that causes the diversification discount? Journal of Finance,56, 1667–1691.CrossRef

Winter, S. J. (1987). Knowledge and competence as strategic assets. In M. L. Tushman & A. H. Van de Ven (Eds.), The competitive challenge (pp. 159–184). Berkeley: School of Business, University of California.

Zahra, S. A. (2005). Entrepreneurial risk-taking in family firms. Family Business Review,18, 23–39.CrossRef

Zhang, T., & Huang, J. (2013). The value of group affiliation: evidence from the 2008 financial crisis. International Journal of Managerial Finance,9, 332–350.CrossRef

Zheng, S. (2017). Can corporate diversification induce more tax avoidance? Journal of Multinational Financial Management,41, 47–60.CrossRef

Title: Business group diversification, financial constraints and firm performance: the case of Tunisian group affiliated firms
Authors: Dorra Ellouze
Khadija Mnasri
Publication date: 15-02-2019
Publisher: Springer US
Published in: Journal of Management and Governance / Issue 1/2020
Print ISSN: 1385-3457
Electronic ISSN: 1572-963X
DOI: https://doi.org/10.1007/s10997-019-09454-4

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 1/2020

Market enforcement under different legal regimes: a comparison of France and Canada

Insider or outsider? The separate and joint effects of firm performance and diversification on CEO recruitment

On intellectual capital management as an evaluation criterion for university managers: a case study

A threefold perspective: conditions for collaborative governance

An interpretive framework of the interplay of competition and cooperation

Family firms, institutional development and earnings quality: does family status complement or substitute for weak institutions?