[Home ] [Archive]   [ فارسی ]  
:: Main :: About :: Current Issue :: Archive :: Search :: Submit :: Contact ::
Main Menu
Home::
Journal Information::
About the Journal
Editorial Board
Aims& Scopes
Journal News
Articles archive::
All Issues
Current Issue
For Authors::
Call for Papers
Submission Instruction
Submission Form
For Reviewers::
Reviewers Section
Registration::
Registration Information
Registration Form
Contact us::
Contact Information
Contact us
Site Facilities::
Site map
Search contents
FAQ
Top 10 contents
Inform to friends
::
Search in website

Advanced Search
..
Receive site information
Enter your Email in the following box to receive the site news and information.
..
:: year 15, Issue 57 (2023) ::
fa 2023, 15(57): 51-72 Back to browse issues page
The Effect of Diversification Strategy on the Efficiency Internal Capital Markets of Business Groups with Emphasis on the Moderating Role of Product Market Competition
Faramarz Karami Taleghani1 , Mohammad Reza Vatan parast * 1, Javad Rezazadeh2 , Keyhan Azadi Hir1
1- Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran.
2- Department of Accounting, Tarbiat Modares University, Tehran, Iran.
Abstract:   (2705 Views)
Accounting literature shows that one of the most important motivations for diversification is the creation and access to internal capital markets. Considering the key role of diversification strategy in the strategic behavior of companies, studies in this field show different results. On the one hand, based on theoretical and experimental researches and arguments, the optimal allocation of internal resources has been mentioned as one of the advantages of these markets. On the other hand, increasing agency problems caused by adopting a diversification strategy are considered as one of the reasons for the inefficient allocation of internal resources in this market. However, what should be pointed out is that in many of these studies, the diversification of independent companies has been investigated and to some extent, the function of the internal capital markets of business groups has been ignored in the context of adopting a diversification strategy. Therefore, the aim of this research is to investigate the effect of diversification strategy on the internal capital markets efficiency of business groups in the allocation of internal resources and performance, taking into account the role of moderating the product market competition. In order to achieve the goal of the research, the information of 18 business groups, whose main companies are listed in the Tehran Stock Exchange or OTC were collected during the years 2015 to 2022 and the study hypotheses were tested using multiple regression with panel data. The findings of the research show that the diversification strategy has a negative and significant effect on the internal resource allocation efficiency and internal capital markets performance efficiency of business groups. Also, the findings show that product market competition weakens the relationship of diversification strategy with the internal resource allocation efficiency and internal capital markets performance efficiency of business groups.
Article number: 4
Keywords: Business Groups, Diversification Strategy, Internal Capital Markets Efficiency, Product Market Competition
Full-Text [PDF 696 kb]   (98 Downloads)    
Type of Study: Research | Subject: Special
References
1. Amihud, Y. and B. Lev. (1981). Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics 12: 605–617
2. Bamiatzi, V., Cavusgil, S. T., Jabbour, L., & Sinkovics, R. R. (2014). Does business group affiliation help firms achieve superior performance during industrial downturns? An empirical examination. International Business Review 23:195–211.
3. Bertrand, M., Mehta, P., & Mullainathan, S. (2002). Ferreting out tunneling: An application to Indian business groups. Quarterly Journal of Economics 117(1): 121-48.
4. Boubaker, S., Manita, R., & Rouatbi, W. (2021). Large shareholders, control contestability and firm productive efficiency. Annals of Operations Research, 296, 591-614.
5. Chakrabarti, R., Megginson, W., & Yadav, P. K. (2008). Corporate governance in India. The Journal of Applied Corporate Finance 20(1): 59–72.
6. Chittoor, R., Kale, P., Puranam, P. (2015). Business groups in developing capital markets: Towards a complementarity perspective. Strategic Management Journal 36(9): 1277–1296.
7. Colli, A., & Colpan, A. M. (2016). Business groups and corporate governance: Review, synthesis, and extension. Corporate Governance: An International Review 24(3): 274–302.
8. Cui, Z., Meng, X., Wang, X., & Wang, K. (2019). Diversified Investment Strategy and the Operation of Internal Capital Market: The Moderating Effect of Corporate Governance Mechanism. IEEE Access 7: 51665-51680.
9. Denis DJ, Denis DK, Sarin A. (1997). Agency problems, equity ownership, and corporate diversification. Journal of Finance 52: 135–160.
10. Dyck, A., & Zingales, L. (2004). Private benefits of control: An international comparison. The Journal of Finance 59(2): 537–600.
11. Elango, B., Pattnaik, C., & Wieland, J. R. (2016). Do business group characteristics matter? An exploration on the drivers of performance variation. Journal of Business Research 69(9): 3205–3212.
12. Ellouze, D., & Mnasri, K. (2020). Business group diversification, financial constraints and firm performance: the case of Tunisian group affiliated firms. Journal of Management and Governance 24(1): 273-301.
13. Ferris, S. P., Kim, K. A., & Kitsabunnarat, P. (2003). The costs (and benefits?) of diversified business groups: The case of Korean chaebols. Journal of Banking & Finance 27(2): 251–273.
14. Giroud, X., & Mueller, H. M. (2011). Corporate governance, product market competition, and equity prices. The Journal of Finance 66(2): 563-600.
15. Glaser, M., Lopez-De-Silanes, F., & Sautner, Z. (2013). Opening the Black Box: Internal capital markets and managerial power. The Journal of Finance 68(4): 1577–1631.
16. Guadalupe, M., & Pérez-González, F. (2010, October). Competition and private benefits of control. In AFA 2007 Chicago Meetings Paper.
17. Guo, X., Chen, S., Yu, W., & Liu, C. (2022). Product market competition and controlling shareholders' tunneling: Evidence from China. Managerial and Decision Economics, 43(8), 3820-3832.
18. Jensen, M. C. and Murphy, K. (1990). Performance pays and top management incentives. Journal of Political Economy 98: 225-263.
19. Kali, R., & Sarkar, J. (2011). Diversification and tunneling: Evidence from Indian business groups. Journal of Comparative Economics, 39(3): 349-367.
20. Karabag, S. F., & Berggren, C. (2014). Antecedents of firm performance in emerging economies: Business groups, strategy, industry structure, and state support. Journal of Business Research 67(10): 2212-2223.
21. Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of finance 55: 867–891.
22. Kim, D., & Sung, T. (2012). Efficiency of internal capital market under a controlling-minority-shareholder structure. Applied Economics Letters 19(18): 1889-1892.
23. Kim, Y. H., & Li, B. (2015). Internal capital market inefficiency across legal origins: international evidence.
24. Kostova, T., Marano, V., & Tallman, S. (2016). Headquarters–subsidiary relationships in MNCs: Fifty years of evolving research. Journal of World Business, 51(1), 176–184.
25. Kumar, V., Gaur, A. S., & Pattnaik, C. (2012). Product diversification and international expansion of business groups. Management International Review 52(2): 175-192.
26. Lin, C.-P., & Chuang, C.-M. (2011). Principal-principal conflicts and IPO pricing in an emerging economy. Corporate Governance: An International Review 19(6): 585–600.
27. Luo, Y., & Tung, R. L. (2018). A general theory of springboard MNEs. Journal of International Business Studies 49(2): 129–152.
28. Maksimovic, V., and G. Phillips. (2002). Do conglomerate firms allocate resources inefficiently across industries? Theory and evidence. Journal of Finance 57 (2): 721-767.
30. Manikandan, K. S., and J. Ramachandran. (2015). Beyond institutional voids: Business groups, incomplete markets, and organizational form. Strategic Management Journal 36 (4):598-617.
31. Markides, C. C., & Williamson, P. J. (1996). Corporate diversification and organizational structure: A resource-based view. Academy of Management journal 39(2): 340-367.
32. Martin, J.D. & Sayrak, A. (2003). Corporate diversification and shareholder value: a survey of recent literature. Journal of Corporate Finance 9(1):37-57.
33. Mathews, J. A. (2006). Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management 23(1): 5–27.
34. McAfee, R. P., & McMillan, J. (1995). Organizational diseconomies of scale. Journal of Economics and Management Strategy, 4(3), 399–426.
35. Miller, G. J., & Smith, R. W. (1993). Managerial dilemmas: The political economy of hierarchy. New York, NY: Cambridge University Press.
36. Poczter, S. (2018). Business groups in emerging markets: A survey and analysis. Emerging Markets Finance and Trade 54(5): 1150–1182.
37. Purkayastha, A., Pattnaik, C., & Pathak, A. A. (2022). Agency conflict in diversified business groups and performance of affiliated firms in India: Contingent effect of external constraint and internal governance. European Management Journal 40(2): 283-294.
38. Ramaswamy, K., Purkayastha, S., & Petitt, B. S. (2017). How do institutional transitions impact the efficacy of related and unrelated diversification strategies used by business groups? Journal of Business Research 72: 1-13.
39. Ren, H. Y., Hsu, C. C., Feng, G. F., Jia, J., & Tsai, W. C. (2021). The impacts of internal capital allocation efficiency on R&D investments: evidence from China. Applied Economics Letters 28(14): 1195-1201.
40. Rodriguez, R. R., Saiz, J. J. A., & Bas, A. O. (2009). Quantitative relationships between key performance indicators for supporting decision-making processes. Computers in Industry 60(2): 104-113.
41. Sanan, N. K., Jaisinghani, D., & Yadav, S. (2021). Corporate governance, firm performance, and business group affiliation: evidence from India. Management Decision, 59(8), 1863-1876.
42. Scharfstein, D., and J. Stein. (2000). The dark side of internal capital markets: Divisional rent-seeking and inefficient investment. Journal of Finance 55 (6): 2537-2564.
43. Shyu, J., (2013) "Ownership structure, capital structure, and performance of group affiliation: Evidence from Taiwanese group‐affiliated firms". Managerial Finance 39(4): 404-420.
44. Staglianò, R., La Rocca, M., & La Rocca, T. (2014). Agency problems, efficient internal capital market and unrelated diversification: empirical evidence from Italy.
45. Van der Molen, R. (2005). Capital allocation in Indian business groups. Who benefits, who loses? Who Benefits, Who Loses.
46. Vitkova, V., Tian, S., & Sudarsanam, S. (2023). Allocative efficiency of internal capital markets: Evidence from equity carve-outs by diversified firms. International Review of Financial Analysis, 102500.
47. Wang, F. J., and Z. H. Xie. )2010(. “The Modification and Verification of Empirical Model to Measure Internal Capital Market Efficiency. Accounting Research 8: 42–48.
48. Wang, Y. Y. (2023). Corporate diversification, investment efficiency and the business cycle. Journal of Corporate Finance, 78, 102353.
49. Zhao, J., Wang, M., & He, Q. (2022). Cash holdings, the internal capital market, and capital allocation efficiency in listed companies. Economic Research-Ekonomska Istraživanja: 1-18.
50. Cheng, J.C., & R.S. Wu. (2018). Internal capital market efficiency and the diversification discount: The role of financial statement comparability. Journal of Business Finance & Accounting, 45(5-6): 572-603.
51. Cheng, P., P. Man & C.H. Yi. (2013). The impact of product market competition on earnings quality. Accounting and Finance 53: 137-162.
Send email to the article author

Add your comments about this article
Your username or Email:

CAPTCHA

XML   Persian Abstract   Print

Download citation:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
Karami Taleghani F, Vatan parast M R, Rezazadeh J, Azadi Hir K. The Effect of Diversification Strategy on the Efficiency Internal Capital Markets of Business Groups with Emphasis on the Moderating Role of Product Market Competition. fa 2023; 15 (57) : 4
URL: http://qfaj.mobarakeh.iau.ir/article-1-2646-en.html
Rights and permissions
Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
year 15, Issue 57 (2023) Back to browse issues page
فصلنامه حسابداری مالی Quarterly Financial Accounting
Persian site map - English site map - Created in 0.06 seconds with 37 queries by YEKTAWEB 4679