THE INVISIBLE HAND OF FAMILY: DIVERSIFICATION IN BUSINESS GROUPS IN EMERGING ECONOMIES

Abstract

The objective of this dissertation is to further our understanding regarding 1) the influence of the `invisible hand of family¿ on the diversification decisions and 2) the consequent performance implications in business groups in emerging economies. Drawing on the literature of social embeddedness and diversification, I conceive diversification decisions in business groups as controlling owners¿ responses to conform to familial norms and pursue family interests. When controlling owners are highly embedded in the family, they will be motivated to diversify more, and to diversify via a new firm rather than a new division. Such relationships are contingent on controlling owners¿ control concentration and institutional development. Furthermore, I demonstrate a U-relation between the level of group diversification and group performance. I find that business groups can gain better performance when using the new division approach. Interestingly, the new division approach is not a preferable option for controlling owners whose primary interest is to serve their family welfare.