When and How Does Business Group Affiliation Promote Firm Innovation? A Tale of Two Emerging Economies

Authors:
Sea-Jin Chang;Chi-Nien Chung;Ishtiaq P. Mahmood
Affiliations:
School of Business Administration, Korea University, Sungbukku Anamdang, Seoul, Korea 136-701;Department of Management and Organization, NUS Business School, National University of Singapore, Singapore 117592;Department of Business Policy, NUS Business School, National University of Singapore, Singapore 117592
Venue:
Organization Science
Year:
2006

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Abstract

Using a comparative institutional perspective, we explore whether business groups' roles in facilitating affiliate firms' innovation varies by country and time period. We compare the innovativeness of firms affiliated with business groups to that of independent firms in two emerging economies: South Korea and Taiwan. On average, business group affiliates outperform independent firms in South Korea, but not in Taiwan, and in the early 1990s, but not in the late 1990s. The existence of alternative institutional infrastructures for innovation might explain these differences. Groups' abilities to share technological knowledge and financial resources among affiliates enables them to create value by promoting innovation in emerging economies, but groups' diversification might inhibit individual affiliates' innovativeness.