Chi-Nien Chung

Keeping it all in the Family: The Role of Particularistic Relationships in Business Group Performance during Institutional Transition:

We examine the role of particularistic relationships (such as family and prior social ties) in business groups during institutional transition and test how particularistic ties between top leaders affect business group performance in Taiwan, where such ties have been central to the functioning of business groups. We propose that during market-oriented transition, family and prior social ties could improve group performance by providing informal norms that strengthen the intermediation within business groups and that family relationships could reduce strategic restructuring and generate performance benefits. Results of a longitudinal study over 24 years show that market transition enhanced the contribution of family and prior social relationships but not that of common-identity relationships, such as being from the same hometown, which do not involve prior direct personal contact. We also found that during transition, the positive contribution of family members would rise up to a threshold, after which additional family members tended to derail group performance, possibly due to informational disadvantages and a legitimacy discount in the eyes of foreign investors. The study helps to make sense of different predictions about the role of particularistic ties in business group performance and makes an initial attempt at revealing how social structure affects performance. Our findings have implications for research on the value of business groups in institutional transition, interorganizational relationships, and the contingencies of social relationships.

Markets, Culture and Institutions: The Emergence of Large Business Groups in Taiwan, 1950s–1970s

Business groups are a special type of enterprise system existing in almost every market economy. Member firms do not operate as isolated units in the markets but have institutionalized relationships with each other and work coherently as an entity. Groups play a central role in economies in which they operate. For Taiwan, the largest 100 groups produced one third of the GNP in the past 20 years. Why does this organizational form exist in the first place? This paper reviews three relevant theories, market‐centred theories, culturalist perspective, and the institutional approach, and employs the data of 150 Taiwanese groups for the answer. The market‐centred theories and the institutional arguments are examined statistically and the latter is supported by the data. Following this evidence, the Boolean comparison of group firms with non‐group firms confirms that lacking a coherent core in ownership and management makes firms unable to respond to institutional incentives promptly. Finally, the structure of family ownership network in business groups refutes the cultural perspective which argues that the equal inheritance pattern of family property drives entrepreneurs to establish separate firms rather than single hierarchies. While both markets and culture play a distinct part in the story, it is regulatory institutions that lead to group formation.

Institutional Logics or Agency Costs: The Influence of Corporate Governance Models on Business Group Restructuring in Emerging Economies

Business groups, the leading economic players in emerging economies, have responded to the market-oriented transition primarily through corporate restructuring. Agency theory predicts that acquisition and divestiture would serve the interests of dominant families and foreign investors in different ways. Further, dominant families, foreign investors from shareholder-based countries, and foreign investors from stakeholder-based countries each operate under distinct institutional logics of appropriate restructuring strategies. We test hypotheses about agency and institutional mechanisms using large business groups in Taiwan between 1986 and 1998 as our empirical example. We find that, consistent with both mechanisms, family-controlled business groups are less likely to divest of unrelated businesses. However, the institutional logics mechanism can better explain the relative lack of unrelated acquisition in family-controlled groups and the difference in divestiture between groups with more shareholder-based ...

Filling or Abusing the Institutional Void? Ownership and Management Control of Public Family Businesses in an Emerging Market

Despite increased attention given to family firms in the theory of organization and management, the value of family governance in emerging markets is not clearly understood. We draw insights from agency and institutional economics perspectives to address the debate on whether family governance fills or abuses the void left by weaker market and legal institutions. We propose a dual focus on the pattern of family control and weak institutions to reconcile these opposed assessments. We analyze how various combinations of family control over ownership, strategy, and operations yield different benefits and costs for the operational performance of firms in the absence of strong market and legal institutions. The uneven development of market institutions across industries and the impact of independent directors reinforce the importance of separating different patterns of family control. We find support for our hypotheses when tested on a data set consisting of all publicly listed firms in Taiwan between 1996 and 2005. Our study contributes to a deeper understanding of family businesses in emerging markets, highlights the importance of weak institutions in shaping relative agency costs, and illuminates the differential effects of independent directors.

Beyond Guanxi: Network Contingencies in Taiwanese Business Groups

Business groups consisting of legally independent affiliates with institutionalized relationships with each other exist in almost every market economy. While the groups are important and pervasive, little attention has been paid to the processes by which business groups emerge and grow. Reasons for this gap include a) a deficiency of the top-down, macro perspective of many business group studies, and b) the overemphasis of Guanxi networks in the literature of business organizations in East Asia. Personal relationships (Guanxi) are treated as the necessary and sufficient condition for the entrepreneurship and evolution of business groups. In an attempt to refine the Guanxi perspective, the author uses case studies of five major Taiwanese business groups to propose a set of contingency factors. The suggestion offered in this paper is that entrepreneurs’ attributes and contextual factors are inseparable from the functions of the Guanxi network in the entrepreneurial process. Tracing the movements of these groups over the past four decades, it appears that group diversification evolves in a path-dependent fashion as opposed to a Guanxi-driven, idiosyncratic pattern as suggested by the Guanxi perspective. The influences of Guanxi for group diversification were clear in the early stages when markets were tightly controlled and the personalistic networks became the core capabilities underlining diversification. However, as groups grew and institutions developed, the significance of political Guanxi diminished and the decision-making of diversification strategy became hinged mainly upon the resources firm accumulated overtime.

Human Agents, Contexts, and Institutional Change: The Decline of Family in the Leadership of Business Groups

This study examines the interaction between change-minded human agents and environmental and organizational contingencies to understand contested change in highly institutionalized practices. We propose a theory of how individuals, including those who are structurally highly embedded, can become change agents when confronted with amplified institutional contradictions. Using the empirical example of family presence in the leadership of Taiwanese business groups, we argue that despite the structural constraints on second-generation key leaders, these leaders are more likely to actualize their motivation to reduce family presence in the contexts of market-oriented transition and highly diversified business groups, and that key leaders with a management education from the United States are more likely to deviate from this institutionalized practice than are non-U.S.-educated key leaders, because they can transport ideas from different business models. A longitudinal analysis of the top 100 business groups in Taiwan between 1977 and 1998 largely supports our arguments. This study contributes to recent endeavors to understand antecedents to institutional change with an explicit focus on the interplay between agency and context, and to business-group research by examining the change of one foundational feature of the group form.

Portfolios of Political Ties and Business Group Strategy in Emerging Economies: Evidence from Taiwan

Using data on 290 business groups, this study examines how ties with rival political parties maintained by Taiwanese firms from 1998 through 2006 affected business strategies, specifically the unrelated diversification into new industries. Taiwan’s recent democratization and emerging economy provide an ideal setting for studying the economic impact of firms’ ties with rival political parties. By focusing on a firm’s entire portfolio of ties instead of strictly dyadic business–government ties, we offer a novel model that demonstrates how the interplay of various ties affects a firm’s strategy differently under different forms of government. Our analysis shows that under a united government, ties to the ruling party facilitate entries of business groups into unrelated industries, while ties to the opposition parties inhibit such moves. Portfolios of ties to both the ruling and opposition parties impose additional obstacles to market entry. Under a divided government, however, ties to the ruling party are conducive to market entry, and portfolios of ties to both the ruling party and the opposition party with legislative authority offer a further boost. Regardless of type of government, the effect of having a portfolio of political ties tends to be mitigated by a firm’s internal resources and capabilities: a firm with sufficient resources and market entry experience has a better chance of achieving its goals even when a dominant political party withholds its support. Our study highlights the tradeoffs that politically connected firms confront in emerging economies with underdeveloped political and market institutions.

The Evolving Impact of Combinatorial Opportunities and Exhaustion on Innovation by Business Groups as Market Development Increases: The Case of Taiwan

Business groups are key sources of innovation in emerging market economies, but we understand little about why innovativeness differs across groups and over time. Variation in the density of intragroup buyer–supplier ties, which are common structural linkages among group affiliates, can help explain both cross-sectional and temporal heterogeneity of group innovativeness. We argue that greater buyer–supplier density within a group initially creates combinatorial opportunities that contribute to group innovativeness but ultimately generates combinatorial exhaustion that constrains innovation. Combinatorial exhaustion will set in at lower levels of density as the market environment becomes more developed because the opportunity costs of local search increase. The research introduces a dynamic argument to studies of business-group innovation. This paper was accepted by Bruno Cassiman, business strategy.

Ties to Unbind: Political Ties and Firm Sell-Offs During Institutional Transition

We examine how formal interlocking political ties between business leaders and political actors affect sell-off strategy of firms in emerging markets. We propose that political ties substitute for underdeveloped institutions and provide firms with market intermediation, influence over political actors, and access to resources. These benefits increase the likelihood that firms with political ties will exit through sell-offs, which is an adaptation strategy in emerging markets. We propose that the effectiveness of political ties in facilitating sell-offs is contingent on the type of political ties and the state of institutional development. Empirically, we evaluate 280 television manufacturers in China between 1993 and 2003. Results show that political ties can help firms exit through sell-offs but that these effects are primarily from ties to actors with executive authority rather than legislative authority. The value of executive ties declines with capital market development, while that of legislative ties increases with legal system development. We show that political ties help firms exit an industry, clarify the conditions under which they are valuable during institutional transition, and improve understanding of the seller’s perspective in acquisitions.

Incentive or Disincentive? A Socioemotional Wealth Explanation of New Industry Entry in Family Business Groups

We examine how controlling owners’ family considerations affect their new industry entry decisions in family business groups in emerging economies. Drawing on the socioemotional wealth (SEW) approach, we conceive the new industry entry decision as controlling owners’ response to pursue various family interests. In particular, we distinguish two aspects of SEW, focused SEW and broad SEW, and theorize their opposing effects on the new industry entry decision. We propose that controlling owners’ likelihood to pursue new industry entry is negatively influenced by the exercise of family influence (a representative of the focused SEW) but is positively associated with the succession of family dynasty (a typical form of the broad SEW). Furthermore, we argue that the effects of SEW preservation on such decisions are contingent on controlling owners’ generation, with the effects to be stronger when the founder generation is in control. We test these hypotheses with a sample of Taiwanese family business groups and find general support for our predictions.