Essays on internal markets of business groups

Abstract

In three essays, I examine how access to internal markets of business groups impacts affiliate firms’ behavior.

In the first essay, I examined the importance of business group affiliation, prior internationalization of incumbent affiliates, and interlocking directorates within the business group in the internationalization of new ventures. Inertial effects from domestic embeddedness do not constrain internationalization of new ventures. New ventures affiliated to business groups can leverage benefits of access to internal resource markets. The results show that business group affiliation positively influences the internationalization of new ventures. Additionally, interlocking directorates within the business group strengthen the relationship between business group affiliation and internationalization of new ventures.

In the second essay, I examined factors influencing resource allocation for CSR, a nonmarket strategy. I focused on firm size, business group affiliation, affiliates’ relative size within the business group, and asset concentration within the business group. The results show that the relationship between firm size and CSR is non–linear and inverted-U shaped. As firm size increases, their resource allocation for CSR increases but decreases at large levels of firm size. The results show that business group affiliation weakens the relationship between firm size and CSR. Additionally, relatively large affiliates of a business group allocate greater resources for CSR, and affiliates of concentrated business groups will allocate lesser resources for CSR.

In the third essay, I examined the role of business group affiliation on firms’ response to institutional reforms. I focused on the institutional reform of strengthening creditors’ access to collateral and used a quasi-natural experiment design. I argue that the loss of private benefits from access to internal capital markets is an additional cost of the reform resulting in business group affiliate responding negatively to the reform. The results show business group affiliates respond negatively to the strengthening of creditors' access to collateral. Further, I argue that business group affiliates with high asset tangibility can leverage benefits of the reform along with the benefits of business group affiliation to respond positively to the reform. The results show that business group affiliates with high asset tangibility increase their access to secured debt.