Research On The Relationship Between Business Group Affiliation And Firm Performance In China

A business group is a set of finns which are linked together by common ownershipand other informal ties. As one type of the new organizations after Chineseeconomical reforms, business groups have caught great attention among thescholars. However, there is insufficient research done about the effects of groupaffiliation on firm profitability and relationships between government and businessgroups in China.Based on institutional theory, resource-based theory, resource dependence theoryand agency theory, using absorptive capability as an important mediator, weanalyze the performance of affiliates of Chinese business groups relative tounaffiliated firms and the impact of absorptive capability on group affiliation.Firstly, we review the current researches about business groups and othercorrelative domains, then identify the defects of existing theories andmethodologies after scanning the literatures both at home and abroad. Based on theliterature review, we develop our own conceptual model and hypotheses. Secondly,using a data set compiled largely from listed firms in Shanghai Securities Exchangeand Shenzhen Securities Exchange, we analyze the effects of group affiliation onfirm profitability, the impact of absorptive capability on group affiliation, theeffects of inside and outside stock concentration rate on affiliated firms'profitability and the effects of group affiliation on risk sharing.The research results show that hypotheses are supported by the data. Groupaffiliation in China has potential both to offer benefits to firms by filling theinstitutional voids and to destroy value due to severe agency & informationproblems. Absorptive capability is the key to affiliated firms' profitability as well.This dissertation has innovations in the following aspects: First of all, thisdissertation expands the understanding of Chinese business groups by employingfirms' perspectives to analyze the effects of group affiliation. Secondly, thisdissertation introduces resource dependence theory to business group research andestablishes the conceptual model with other related theories. Thirdly, thisdissertation discloses the effect of stock concentration on affiliated firms'profitability and finds evidences of curvilinear relationships between inside stockconcentration rate and affiliated firms' profitability.