A contingency theory of political connections: Business group diversification in emverging economies

Abstract

This paper examines how formal and informal political connections facilitate business group diversification in an emerging economy before and after political liberalization. We study diversification by the top 100 business groups in Taiwan from 1986 to 1994. We find that formal political connections with national leaders facilitate diversification prior to liberalization, but only informal connections to legislators and officials contribute to diversification after liberalization. The analysis rejects the possibility that diversification might lead to creating connections. The study contributes to studies of business groups in emerging economies, as well as to the more general literatures on diversification and political strategy.