IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v66y2013i12p2425-2430.html
   My bibliography  Save this article

Does diversification add firm value in emerging economies? Effect of corporate governance

Author

Listed:
  • Lien, Yung-Chih
  • Li, Shaomin

Abstract

Using 205 Taiwanese firms spanning five years, this research examines how corporate governance factors specific to emerging economies determine the extent of diversification and moderate its performance. The analyses reveal that controlling family ownership is significantly associated with a greater extent of diversification, which impairs firm value. Conversely, domestic bank ownership significantly decreases diversification, which in turn increases diversification performance. These findings present the evidence of controlling family entrenchment through diversification and the significant role domestic banks play in the principal–principal corporate governance framework.

Suggested Citation

  • Lien, Yung-Chih & Li, Shaomin, 2013. "Does diversification add firm value in emerging economies? Effect of corporate governance," Journal of Business Research, Elsevier, vol. 66(12), pages 2425-2430.
    • Handle: RePEc:eee:jbrese:v:66:y:2013:i:12:p:2425-2430
    DOI: 10.1016/j.jbusres.2013.05.030
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S014829631300221X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbusres.2013.05.030?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Roger Strange & Igor Filatotchev & Yung-chih Lien & Jenifer Piesse, 2009. "Insider Control and the FDI Location Decision," Management International Review, Springer, vol. 49(4), pages 433-454, September.
    2. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    3. Charles W. L. Hill & Michael A. Hitt & Robert E. Hoskisson, 1992. "Cooperative Versus Competitive Structures in Related and Unrelated Diversified Firms," Organization Science, INFORMS, vol. 3(4), pages 501-521, November.
    4. Lee, Keonbeom & Peng, Mike W. & Lee, Keun, 2008. "From diversification premium to diversification discount during institutional transitions," Journal of World Business, Elsevier, vol. 43(1), pages 47-65, January.
    5. Igor Filatotchev & Roger Strange & Jenifer Piesse & Yung-Chih Lien, 2007. "FDI by firms from newly industrialised economies in emerging markets: corporate governance, entry mode and location," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 556-572, July.
    6. Donald D. Bergh & Michael W. Lawless, 1998. "Portfolio Restructuring and Limits to Hierarchical Governance: The Effects of Environmental Uncertainty and Diversification Strategy," Organization Science, INFORMS, vol. 9(1), pages 87-102, February.
    7. J. Michael Geringer & Stephen Tallman & David M. Olsen, 2000. "Product and international diversification among Japanese multinational firms," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 51-80, January.
    8. Lien, Yung-Chih & Piesse, Jenifer & Strange, Roger & Filatotchev, Igor, 2005. "The role of corporate governance in FDI decisions: Evidence from Taiwan," International Business Review, Elsevier, vol. 14(6), pages 739-763, December.
    9. Michael Lubatkin & Yan Ling & William S. Schulze, 2007. "An organizational justice-based view of self-control and agency costs in family firms," Post-Print hal-02311795, HAL.
    10. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103, June.
    11. Michael N. Young & Mike W. Peng & David Ahlstrom & Garry D. Bruton & Yi Jiang, 2008. "Corporate Governance in Emerging Economies: A Review of the Principal–Principal Perspective," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 196-220, January.
    12. James J. Chrisman & Jess H. Chua & Pramodita Sharma, 2005. "Trends and Directions in the Development of a Strategic Management Theory of the Family Firm," Entrepreneurship Theory and Practice, , vol. 29(5), pages 555-575, September.
    13. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    14. Igor Filatotchev & Steve Toms, 2006. "Corporate Governance and Financial Constraints on Strategic Turnarounds," Journal of Management Studies, Wiley Blackwell, vol. 43(3), pages 407-433, May.
    15. Michael H. Lubatkin & Yan Ling & William S. Schulze, 2007. "An Organizational Justice‐Based View of Self‐Control and Agency Costs in Family Firms," Journal of Management Studies, Wiley Blackwell, vol. 44(6), pages 955-971, September.
    16. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    17. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    18. Igor Filatotchev & Yung-Chih Lien & Jenifer Piesse, 2005. "Corporate Governance and Performance in Publicly Listed, Family-Controlled Firms: Evidence from Taiwan," Asia Pacific Journal of Management, Springer, vol. 22(3), pages 257-283, September.
    19. Daphne W. Yiu & Yuan Lu & Garry D. Bruton & Robert E. Hoskisson, 2007. "Business Groups: An Integrated Model to Focus Future Research," Journal of Management Studies, Wiley Blackwell, vol. 44(8), pages 1551-1579, December.
    20. Daphne Yiu & Garry D. Bruton & Yuan Lu, 2005. "Understanding Business Group Performance in an Emerging Economy: Acquiring Resources and Capabilities in Order to Prosper," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 183-206, January.
    21. Ruth V. Aguilera & Igor Filatotchev & Howard Gospel & Gregory Jackson, 2008. "An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities," Organization Science, INFORMS, vol. 19(3), pages 475-492, June.
    22. Mike Peng & Andrew Delios, 2006. "What determines the scope of the firm over time and around the world? An Asia Pacific perspective," Asia Pacific Journal of Management, Springer, vol. 23(4), pages 385-405, December.
    23. Martin, John D. & Sayrak, Akin, 2003. "Corporate diversification and shareholder value: a survey of recent literature," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 37-57, January.
    24. repec:bla:jfinan:v:53:y:1998:i:2:p:605-634 is not listed on IDEAS
    25. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    26. Le, Son Anh & Walters, Bruce & Kroll, Mark, 2006. "The moderating effects of external monitors on the relationship between R&D spending and firm performance," Journal of Business Research, Elsevier, vol. 59(2), pages 278-287, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lien, Yung-Chih & Filatotchev, Igor, 2015. "Ownership characteristics as determinants of FDI location decisions in emerging economies," Journal of World Business, Elsevier, vol. 50(4), pages 637-650.
    2. Zinnia Mitra Bose & Indrani Chakraborty, 2022. "Effects of diversification on firm performance: an analysis of Indian firms," Indian Economic Review, Springer, vol. 57(2), pages 469-511, December.
    3. Piñeiro-Chousa, Juan Ramón & López-Cabarcos, M. Ángeles & Pérez-Pico, Ada María, 2016. "Examining the influence of stock market variables on microblogging sentiment," Journal of Business Research, Elsevier, vol. 69(6), pages 2087-2092.
    4. Sin-Huei Ng & Tze San Ong & Boon Heng Teh, 2019. "An Agency Perspective on Firm Diversification, Efficiency and Performance: Evidence From Malaysia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 24-41, October.
    5. Xiao, Zhenxin & Yang, Bin & Dong, Songting & Chuoyan Dong, Maggie, 2024. "B2B strategies for surviving global crises: A resource dependence perspective on the COVID−19 pandemic," Journal of Business Research, Elsevier, vol. 172(C).
    6. Dina Patrisia & Shabbir Dastgir, 2017. "Diversification and corporate social performance in manufacturing companies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(1), pages 121-139, April.
    7. Collins E. Okafor & Nacasius U. Ujah & Eunho Cho & Winifred U. Okafor & Kevin L. James, 2023. "The Moderating Effect of a Golden Parachute on the Association between CSR and Firm Value: Does Gender-Driven Innovation Matter?," Sustainability, MDPI, vol. 15(6), pages 1-23, March.
    8. Jangsoon Kim & Donseung Choi & Eunho Cho & Collins E. Okafor & Byung Il Park, 2022. "Corporate Sustainability in the Wake of the COVID-19 Global Pandemic: Does CSR Enhance Corporate Survival during a Market Crisis?," Sustainability, MDPI, vol. 14(21), pages 1-18, November.
    9. Mulugeta Girma Dibiku, 2023. "Kaizen and Productivity: The Mediating Effect of the Customer-supplier Relationship Using Smart-PLS," Istanbul Management Journal, Istanbul University Business School, vol. 0(94), pages 1-15, June.
    10. Duc Nam Phung & Anil V. Mishra, 2016. "Ownership Structure and Firm Performance: Evidence from Vietnamese Listed Firms," Australian Economic Papers, Wiley Blackwell, vol. 55(1), pages 63-98, March.
    11. Duc Nam Phung & Anil V. Mishra, 2016. "Corporation Diversification and Firm Performance: Evidence from Vietnamese Listed Firms," Australian Economic Papers, Wiley Blackwell, vol. 55(4), pages 386-408, December.
    12. Ramaswamy, Kannan & Purkayastha, Saptarshi & Petitt, Barbara S., 2017. "How do institutional transitions impact the efficacy of related and unrelated diversification strategies used by business groups?," Journal of Business Research, Elsevier, vol. 72(C), pages 1-13.
    13. Yang, Zhilin & Su, Chenting, 2013. "Understanding Asian business strategy: Modeling institution-based legitimacy-embedded efficiency," Journal of Business Research, Elsevier, vol. 66(12), pages 2369-2374.
    14. Purkayastha, Saptarshi & Manolova, Tatiana S. & Edelman, Linda F., 2018. "Business group effects on the R&D intensity-internationalization relationship: Empirical evidence from India," Journal of World Business, Elsevier, vol. 53(2), pages 104-117.
    15. Cornelius Hafner, 2021. "Diversification in family firms: a systematic review of product and international diversification strategies," Review of Managerial Science, Springer, vol. 15(3), pages 529-572, April.
    16. Zhuwei Li & Yucheng Wang & Lijie Yu & Hui An, 2016. "Relationship between initiative risk management and firm value: evidence from Chinese financial listed companies," Applied Economics, Taylor & Francis Journals, vol. 48(8), pages 658-668, February.
    17. Nicola Cucari, 2019. "Determinants of say on pay vote: a configurational analysis," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 837-856, September.
    18. Wang, Kun Tracy & Shailer, Greg, 2017. "Family ownership and financial performance relations in emerging markets," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 82-98.
    19. Zach, Florian J. & Schnitzer, Martin & Falk, Martin, 2021. "Product diversification and isomorphism: The case of ski resorts and “me-too” innovation," Annals of Tourism Research, Elsevier, vol. 90(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lien, Yung-Chih & Filatotchev, Igor, 2015. "Ownership characteristics as determinants of FDI location decisions in emerging economies," Journal of World Business, Elsevier, vol. 50(4), pages 637-650.
    2. Weiping Liu & Haibin Yang & Guangxi Zhang, 2012. "Does family business excel in firm performance? An institution-based view," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 965-987, December.
    3. Ning, Lutao & Kuo, Jing-Ming & Strange, Roger & Wang, Boya, 2014. "International investors’ reactions to cross-border acquisitions by emerging market multinationals," International Business Review, Elsevier, vol. 23(4), pages 811-823.
    4. Purkayastha, Saptarshi & Veliyath, Rajaram & George, Rejie, 2019. "The roles of family ownership and family management in the governance of agency conflicts," Journal of Business Research, Elsevier, vol. 98(C), pages 50-64.
    5. Andre Leonardo Pruner da Silva & Jeferson Lana & Rosilene Marcon, 2018. "Agreeing and Impacting: The Effect of the Shareholders' Agreement on Firms' Market Value," Brazilian Business Review, Fucape Business School, vol. 15(1), pages 88-104, January.
    6. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195, September.
    7. Bowo Setiyono & Amine Tarazi, 2014. "Does the presence of institutional investors in family banks affect profitability and risk? Evidence from an emerging market," Working Papers hal-01077118, HAL.
    8. Abdallah, Abed Al-Nasser & Ismail, Ahmad K., 2017. "Corporate governance practices, ownership structure, and corporate performance in the GCC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 98-115.
    9. Chen, Chiung-Jung & Yu, Chwo-Ming Joseph, 2012. "Managerial ownership, diversification, and firm performance: Evidence from an emerging market," International Business Review, Elsevier, vol. 21(3), pages 518-534.
    10. Igor Filatotchev & Gregory Jackson & Chizu Nakajima, 2013. "Corporate governance and national institutions: A review and emerging research agenda," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 965-986, December.
    11. Igor Filatotchev & Xiaoxiang Zhang & Jenifer Piesse, 2011. "Multiple agency perspective, family control, and private information abuse in an emerging economy," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 69-93, March.
    12. Victor Chen & Jing Li & Daniel Shapiro, 2011. "Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 115-138, March.
    13. Chi, Ching Wen & Hung, Ken & Cheng, Hui Wen & Tien Lieu, Pang, 2015. "Family firms and earnings management in Taiwan: Influence of corporate governance," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 88-98.
    14. Aguilera, Ruth V. & Crespi-Cladera, Rafel, 2016. "Global corporate governance: On the relevance of firms’ ownership structure," Journal of World Business, Elsevier, vol. 51(1), pages 50-57.
    15. Caixe, Daniel Ferreira & Kalatzis, Aquiles Elie Guimarães & Castro, Luiz Ricardo Kabbach de, 2019. "Controlling shareholders and investment-risk sensitivity in an emerging economy," Emerging Markets Review, Elsevier, vol. 39(C), pages 133-153.
    16. Shaleen Gopal & K. S. Manikandan & J. Ramachandran, 2021. "Are There Limits to Diversification in Emerging Economies? Distinguishing between Firm‐Level and Business Group Strategies," Journal of Management Studies, Wiley Blackwell, vol. 58(6), pages 1532-1568, September.
    17. Hearn, Bruce, 2011. "The performance and the effects of family control in North African IPOs," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 140-151, June.
    18. Bao, Shuji Rosey & Lewellyn, Krista B., 2017. "Ownership structure and earnings management in emerging markets—An institutionalized agency perspective," International Business Review, Elsevier, vol. 26(5), pages 828-838.
    19. Yusuf, Fatima & Yousaf, Amna & Saeed, Abubakr, 2018. "Rethinking agency theory in developing countries: A case study of Pakistan," Accounting forum, Elsevier, vol. 42(4), pages 281-292.
    20. Al-Faryan, Mamdouh Abdulaziz Saleh & Dockery, Everton, 2017. "Ownership structure and corporate governance: What does the data reveal about Saudi listed firms?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(4-2), pages 413-424.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:66:y:2013:i:12:p:2425-2430. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.