Market distance and insider-ownership strategies

a resource-dependence perspective

Research output: Contribution to journalArticle

Abstract

Purpose: Ownership issues are an important feature of corporate governance when firms focus on global expansion in multiple and diverse regions. Drawing on resource dependence theory (RDT), the purpose of this paper is to address the phenomenon regarding the extent to which international market distance affects equity stakes in group-affiliated firms held by business group headquarters. Design/methodology/approach: This study uses longitudinal data on foreign direct investments by 106 business groups (BGs), including 561 group-affiliated firms, from Taiwan over a five-year period from 2006 to 2010. Findings: The results show that the equity stakes of the BG headquarters in the group-affiliated firms in foreign markets were positively associated with the geographic distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms, the cultural distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms and institutional distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms. Research limitations/implications: Most studies of corporate governance and international business are based on a transaction cost economics approach, a resource-based perspective and agency and institutional theories. In contrast, this study, by using RDT, provides an alternative explanation regarding the factors that affect the equity stakes of parent firms in group-affiliated firms. Practical implications: This study presents two basic pieces of advice for consideration. First, at the managerial level, group-affiliated firms should develop their own resources and capabilities in order to become more autonomous in pursuing advantageous international activities that the parent firms may not foresee. Second, and again at the managerial level, business group headquarters should adopt a strategy to balance the dependency relationship between group-affiliated firms and business group headquarters. Originality/value: This study provides the most finely grained analysis, to date, regarding how international market distance affects business group headquarters from newly industrialized economies in terms of diverse equity stakes in foreign affiliates, the unique attributes of BGs and international market distances’ relationship with both the operations and the expansion opportunities of BGs.

Original languageEnglish
JournalManagement Decision
DOIs
Publication statusAccepted/In press - 2018 Jan 1

Fingerprint

Resource dependence
Insider ownership
Business groups
Headquarters
Equity
Host country
International markets
Corporate governance
Resource dependence theory
Design methodology
Newly industrialized economies
Factors
Foreign affiliates
Foreign direct investment
Resources and capabilities
Agency theory
Longitudinal data
Transaction cost economics
Cultural distance
Resource-based perspective

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Management Science and Operations Research

Cite this

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title = "Market distance and insider-ownership strategies: a resource-dependence perspective",
abstract = "Purpose: Ownership issues are an important feature of corporate governance when firms focus on global expansion in multiple and diverse regions. Drawing on resource dependence theory (RDT), the purpose of this paper is to address the phenomenon regarding the extent to which international market distance affects equity stakes in group-affiliated firms held by business group headquarters. Design/methodology/approach: This study uses longitudinal data on foreign direct investments by 106 business groups (BGs), including 561 group-affiliated firms, from Taiwan over a five-year period from 2006 to 2010. Findings: The results show that the equity stakes of the BG headquarters in the group-affiliated firms in foreign markets were positively associated with the geographic distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms, the cultural distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms and institutional distance between the country of the BG headquarters and the host country of the foreign group-affiliated firms. Research limitations/implications: Most studies of corporate governance and international business are based on a transaction cost economics approach, a resource-based perspective and agency and institutional theories. In contrast, this study, by using RDT, provides an alternative explanation regarding the factors that affect the equity stakes of parent firms in group-affiliated firms. Practical implications: This study presents two basic pieces of advice for consideration. First, at the managerial level, group-affiliated firms should develop their own resources and capabilities in order to become more autonomous in pursuing advantageous international activities that the parent firms may not foresee. Second, and again at the managerial level, business group headquarters should adopt a strategy to balance the dependency relationship between group-affiliated firms and business group headquarters. Originality/value: This study provides the most finely grained analysis, to date, regarding how international market distance affects business group headquarters from newly industrialized economies in terms of diverse equity stakes in foreign affiliates, the unique attributes of BGs and international market distances’ relationship with both the operations and the expansion opportunities of BGs.",
author = "Wen-Ting Lin",
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