FDI decisions and business-group insider control: Evidence from Taiwanese group-affiliated firms investing in the Chinese market

Based on resource-dependence theory, three hypotheses are developed and tested regarding the negative relationship between equity stakes in group-affiliated firms held by business-group headquarters and (1) the slack resources of group-affiliated firms, (2) the products of group-affiliated firms that are similar to those of the business-group headquarters, and (3) the human capital of group-affiliated firms. OLS regressions are used to test the hypotheses on a sample of existing group-affiliates of 218 business-groups entering the China market to establish a new affiliate, including 1015 observations during the 2004-2011 period. This study points to a new avenue for research on international business and business-group literature regarding ownership relations between group-affiliated firms and business-group headquarters.