International strategy and business groups: A review and future research agenda

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Journal of World Business xxx (2016) xxx–xxx

Contents lists available at ScienceDirect

Journal of World Business journal homepage: www.elsevier.com/locate/jwb

International strategy and business groups: A review and future research agenda R. Michael Holmes Jr.a,* , Robert E. Hoskissonb , Hicheon Kimc, William P. Wand, Tim R. Holcombe a

College of Business, Florida State University, Tallahassee, FL 32306, United States Jesse H. Jones Graduate School of Business, Rice University, Houston, TX 77005, United States Korea University Business School, Seoul 136-701, South Korea d City University of Hong Kong, 12-200, Lau Ming Wai Academic Building, Hong Kong e Farmer School of Business, Miami University, Oxford, OH 45056, United States b c

A R T I C L E I N F O

Article history: Received 20 August 2015 Received in revised form 7 November 2016 Accepted 8 November 2016 Available online xxx Keywords: Business groups International strategy Market imperfections Internal markets Corporate strategy and governance Economic development

A B S T R A C T

Motivated by the growth and internationalization of business groups, this paper reviews the business group literature and presents a future research agenda, highlighting their implications for international strategy. The paper identifies theoretical tensions and empirical ambiguities around three key business group features—corporate governance, internal markets, and corporate strategy—and three key outcome variables—performance, economic impact, and innovation—that have generated significant debate. We conclude with three methodological concerns relevant to these debates: generalizing business group research across countries, endogeneity in business group research, and performance measurement in business groups. ã 2016 Elsevier Inc. All rights reserved.

Contents 1. 2.

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Literature review methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 How do business groups’ internal markets benefit versus harm affiliate and business group performance, and how do market imperfections shape these relationships? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 Internal capital markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 2.1. Internal labor markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 2.2. Intragroup trade markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 2.3. 2.4. Future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 What are the antecedents and consequences of business groups’ corporate strategies, and how do these strategies evolve as country environments change? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 Product diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 3.1. International diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 3.2. 3.3. Future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 How does business group corporate governance affect strategy, performance, and the appropriation of financial returns? . . . . . . . . . . . . . . 00 4.1. Ownership concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 Pyramidal ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 4.2. 4.3. Ownership type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 Family owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00 4.3.1. 4.3.2. State owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00

* Corresponding author. E-mail addresses: [email protected] (R. M. Holmes), [email protected] (R.E. Hoskisson), [email protected] (H. Kim), [email protected] (W.P. Wan), [email protected] (T.R. Holcomb). http://dx.doi.org/10.1016/j.jwb.2016.11.003 1090-9516/ã 2016 Elsevier Inc. All rights reserved.

Please cite this article in press as: R.M. Holmes, et al., International strategy and business groups: A review and future research agenda, Journal of World Business (2016), http://dx.doi.org/10.1016/j.jwb.2016.11.003

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5.

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4.3.3. Institutional owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Boards of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4. Future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5. How do business groups impact economic development and innovation? Economic development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1. Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2. Future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3. Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1. Generalizability of business group research across countries . . . . Endogeneity in business group research . . . . . . . . . . . . . . . . . . . . . 6.2. Performance measurement in business groups . . . . . . . . . . . . . . . 6.3. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business group are interorganizational networks of semiautonomous firms bound through multiplex ownership, buyersupplier, director interlock, and/or social ties. Though business group member firms (hereafter affiliates) pursue mutual objectives, they retain legal independence (Khanna & Rivkin, 2001; Yiu, Bruton, & Lu, 2005). Business groups are critically important in many economies, especially in late-industrializing countries. For instance, 45 of India’s 50 largest enterprises are business groups, and their affiliates have produced better stock returns than nonaffiliated (hereafter standalone) firms (Ramachandran, Manikandan, & Pant, 2013). Business groups also help drive globalization in many countries. Overseas exports by large Korean chaebol, for example, accounted for about 53% of Korea’s GDP in 2002 but 82% in 2012 (Pesek, 2013). Moreover, Belenzon, Berkovitz, and Rios (2013) identified over 26,000 business groups in Western European countries, suggesting that they have a strong presence in some developed economies also. Motivated by the importance, growth, and internationalization of business groups, our paper reviews the literature on them and presents a future research agenda, focusing chiefly on their implications for international strategy research. We argue that it is important to evaluate how business groups inform international strategy research.1 Whereas most international research focuses on standalone firms, business groups are hybrid organizational forms that “contain features of both markets and hierarchies” (Vissa, Greve, & Chen, 2010: 698): affiliates are connected more tightly to one another than to outside firms, yet they are connected more loosely than the business units in hierarchies. Business group research, in turn, offers unique theoretical and practical insights for international strategy. At the same time, the independence yet interconnectedness of the affiliates creates specific methodological challenges. Reflecting these concerns, our review identified (1) three defining and interrelated features of business groups that function differently from their analogues in standalone firms, (2) lingering questions about how business groups shape three key outcome variables, and (3) three methodological concerns for future research to address. Specifically, three defining features of business groups are interrelated and create unique strategic challenges. First, they have complex corporate governance structures: although each affiliate may have its own investors, a powerful shareholder (e.g., family) with equity in several affiliates often controls the overall group. Thus, business groups have dual control systems with multiple

1 International strategy research addresses business activities that cross country borders. It concerns antecedents, processes, and results of decisions about (1) the geographic location of firm activities, (2) how to balance local responsiveness and global integration; (3) entry modes, entry timing, and exit; and (4) how to acquire, develop, and share resources for these efforts (e.g., Doh, Luthans, & Slocum, 2016; Hitt, Tihanyi, Miller, & Connelly, 2006; Ricart, Enright, Ghemawat, Hart, & Khanna, 2004).

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power centers, meaning that affiliates’ boards of directors represent and must balance more competing interests than in standalone firms. Second, because business groups’ internal markets allow affiliates to exchange resources, they also may allow powerful owners to expropriate wealth from minority owners. Third, often due to historical circumstances, the corporate strategy of many business groups involves significant scale and scope. Historically, growth via product diversification enriched business groups’ internal markets and ability to cope with market imperfections (i.e., weak factor markets and institutions) in emerging economies (Khanna & Palepu, 1997), but more recently, many have grown via international diversification also (Kim, Hoskisson, & Lee, 2015). Whether the business group form provides advantages (e.g., internal markets, branding, etc.) or disadvantages (e.g., sunk costs, inflexibility, etc.) in increasingly dynamic and innovative international markets, however, remains an open question. Therefore, although ownership structures, internal markets, and corporate strategy are not unique to business groups, they are more complex in the business group context than in others. As these points suggest, business groups generate many opposing forces. Partly as a result, researchers apply diverse theoretical perspectives to study business groups, and there are long-standing debates about each of three key outcome variables in this literature. First, we lack answers to questions about affiliate and business group performance. Whereas institutional and transaction cost theories identify advantages of business groups, especially when market imperfections are greater, agency theory identifies principal–principal agency conflicts between minority and controlling owners. In turn, Carney, Gedajlovic, Heugens, van Essen, and van Oosterhout’s (2011: 446, 451) meta-analyses reveal that affiliates perform worse than standalone firms, but the authors note that the effect is “small” and that there is “substantial” heterogeneity in its magnitude and direction that extant theory does not explain. Second, research on business groups’ economic impact also is inconclusive. Often grounded in political economy perspectives, this work suggests that although business groups can support the development of country factor markets and institutions, groups also build political power and may engage in corruption. Thus, their potential as engines of economic development exists alongside their potential to manipulate the environment opportunistically. Third, their effects on innovation are similarly complex. Though resource-based and learning perspectives suggest that intragroup knowledge and capability sharing stimulate innovation, affiliates’ independence might hinder such sharing while creating information processing and coordination costs. In turn, research also demonstrates that business groups have mixed effects on innovation (Belenzon & Berkovitz, 2010; Chon, 1996; Hundley, Jacobson, & Park, 1996; Mahmood & Mitchell, 2004). Thus, our knowledge of these important business group outcomes also remains incomplete.

Please cite this article in press as: R.M. Holmes, et al., International strategy and business groups: A review and future research agenda, Journal of World Business (2016), http://dx.doi.org/10.1016/j.jwb.2016.11.003

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Lastly, three methodological concerns that stem from the diversity and complexity of business groups are relevant to these ongoing theoretical tensions and empirical ambiguities. First, there are questions about the generalizability of business group research across countries. Indeed, the articles in our review examined business groups in more than 50 countries in Africa, Asia, Europe, Oceania, and the Americas. Concerns about generalizability derive not only from differences in factor markets and institutions, but also from differences in the structures and ownership of business groups, across countries (Yiu, Lu, Bruton, & Hoskisson, 2007). Second, endogeneity in business group research is a potentially important concern, because affiliates are nested inside larger groups. Business groups’ dual control systems, for example, aggravate the potential for endogeneity between affiliate strategy and performance. Third, for similar reasons, performance measurement in business groups is challenging. Affiliates within the same business group serve different purposes (e.g., some exist only to serve others), have different owners (e.g., some are publicly traded while others are not), and engage in complex transactions with one another (e.g., through internal markets), thus complicating performance measurement. Because methodological issues may perpetuate inconsistent empirical results (Carney et al., 2011), perhaps fueling some of the ongoing debates, addressing the methodological design issues might address some of the theoretical disagreements in the business group literature. Reflecting the many theoretical, empirical, and methodological concerns in international strategy research on business groups, this review discusses the research relevant to the major debates and plots a future research agenda. We organize our review and future research agenda around four central research questions that cut across the three business group features, outcome variables, and methodological issues described above and that, in turn, capture major debates and principal themes in the literature. First, how do business groups’ internal markets benefit versus harm affiliate and business group performance, and how do market imperfections shape these relationships? Second, what are the antecedents and consequences of business groups’ corporate strategies, and how do these strategies evolve over time as country environments change? Third, in what ways does business group corporate governance affect strategy, performance, and the appropriation of financial returns? Fourth, how do business groups impact economic development and innovation? The paper proceeds as follows. First, we present the literature review methodology. Then, we review the literature related to each of the four questions described above. Following our review of the relevant literature, we discuss future research opportunities that may shed light on the four questions above. We close by considering the three methodological design issues. 1. Literature review methodology We surveyed business group research through summer 2016 in journals that publish international strategy research. We began with journals on the 2015 Financial Times Research Rankings list, as they are regarded as top scholarly outlets. In international business, we included Journal of International Business Studies; in management, Academy of Management Journal, Academy of Management Perspectives,2 Academy of Management Review, Administrative Science Quarterly, Journal of Management Studies, Management Science, Organization Science, and Strategic Management Journal. In entrepreneurship, Entrepreneurship Theory and Practice and Journal of Business Venturing. Given our focus on international strategy, we added five leading journals that were not

2

Formerly Academy of Management Executive.

3

included on the Financial Times list: Global Strategy Journal, International Business Review, Journal of International Management, Management International Review, and Journal of World Business.3 Using Web of Science, we searched for variants of business group, industrial group or financial-industrial group, keiretsu (Japan), qiye jituan (China), business house (India), grupo (Spain), grupo economico (Latin America), chaebol (Korea), guanxi qiye (Taiwan), and family holding (Turkey) (Yiu et al., 2007: 1552) in the titles, abstracts, and key words of articles in these journals. We examined each article and removed those that were not about business groups, leaving 164 articles to review.4 We then analyzed the articles to create an organizing framework for the review. This process involved several steps completed by different authors. First, one author coded sampled countries, theoretical perspectives, business group features, and outcome variables in each article using its title, abstract, key words, and content.5 Using this coding, he then created a framework organized around the key features and outcome variables. Three other authors reviewed this work and helped revised the framework. Then, using the revised framework, a final author recoded the articles. After this recoding and during the writing process, the authors reviewed and modified the coding and framework iteratively, eventually arriving at the model in Fig. 1, which depicts the three business group features and three outcome variables described above. As noted, we organize the review and future research agenda around four questions that cut across the three business group features and outcome variables described above. Thus, we refer back to the labeling in Fig. 1 (the Fs stand for business group features; the Os for business group outcomes) when introducing each of the four questions and when discussing the future research agenda. Likewise, Table 1 summarizes the future research agenda and references the key themes in Fig. 1. Lastly, in the sections that follow, the italicized material corresponds to the bullet points in Fig. 1 and Table 1. For informational purposes, Fig. 1 also lists countries and theoretical perspectives that have received the most research attention.6

3 Financial Times updated its list in mid-2016 while this paper was under its third review. Thus, we did not recollect the sample to reflect the change. And, to keep the number of articles manageable, we exclude journals with regional foci (e.g., Asian Pacific Journal of Management), though we reference a handful of these articles that are important to the topics we discuss. Likewise, where needed, we occasionally reference sociology, finance, and economics research, though that research is not our focus. 4 The original search generated 218 articles. However, Web of Science searches not only Author Key Words (supplied by authors), but also Key Words Plus (created by Thomson Reuters based on the titles of works listed in the reference section). Thus, Web of Science sometimes returns papers that allude to the focal topic only tangentially if at all. For instance, many of the papers omitted from our review referred to business groups in passing, often in the Discussion, but were not actually about business groups. Other omitted papers were about special interest groups or lobbying organizations and, in turn, were irrelevant. 5 Two authors coded the theoretical perspectives independently. They coded the articles by examining explicit references to the focal theories and/or constructs associated with those theories, especially in the articles’ abstracts, key words, introductions, and hypotheses development. In a random sample of 50 papers, inter-rater agreement was 78%. In each disagreement, the paper drew on multiple perspectives, and the coders agreed on at least half of the theoretical perspectives used in the focal paper. 6 Our review differs from two older reviews of business groups in important ways. First, Granovetter (2005) covered sociology research and emphasized social relations inside and outside business groups. Second, Khanna and Yafeh (2007) covered finance and economics research and emphasized their social welfare effects. By contrast, we focus on international strategy and address a broader set of unresolved questions about business groups. Thus, of the 164 articles in our sample, only nine were covered in either of those two papers. Our review also covers more recent work, including papers in Colpan, Hikino, and Lincoln (2010).

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MOST-EXAMINED COUNTRIES • • • • •

• • • • •

India (35) Japan (35) Korea (29) Taiwan (22) Argentina (12)

THEORETICAL PERSPECTIVES • Institutional Theory (79) • Agency Theory (35) • Resource-based Theory (58) • Organizational Learning (22) • Social Capital (37) • Transaction Cost Theory (11) Studies Multiple Theoreitical Perspectives (95)2

Indonesia (11) China (11) Mexico (9) Brazil (8) Chile (8)

BUSINESS GROUP ATTRIBUTES

BUSINESS GROUP OUTCOMES AFFILIATE & BUSINESS GROUP PERFORMANCE • Growth and profits • Market performance • Non-financial performance (e.g., social, non-pecuniary, and survival)

CORPORATE GOVERNANCE • • • •

Ownership concentration Pyramidal ownership Ownership type (i.e., family, state, and institutional) Boards of directors

• • • •

ECONOMIC IMPACT

[F1] • • •

CORPORATE STRATEGY

INTERNAL MARKETS Internal capital markets Internal labor markets Intragroup trade markets Propping up and tunneling

[F2]

• Product diversification (and restructuring) • International diversification (i.e., internationalization, location, and entry modes)

[O4]

State-engineered industrialization Business group power Market imperfections (i.e., weak factor markets and institutions)

[O5]

INNOVATION [F3]

• • •

Innovation infrastructures Entrepreneurial capabilities Diverse but related knowledge

[O6]

1. 2.

The term F stands for business group feature. The term O stands for business group outcomes. Studies using multiple theoretical perspectives are counted both here and in the respective theoretical perspective. Fig. 1. Summary theoretical framework1.

Table 1 Future research agenda. Research Questions

Themea

How do business groups’ internal markets benefit versus harm affiliate and business group performance, and how do market imperfections shape these relationships? How do internal markets work together to affect business group strategy and performance? F1, F2, F3, O4 Do stronger factor markets and institutions weaken or strengthen business groups over time? F2, F3, O4, O5 How do maturing factor markets and institutions affect business groups differently? F3, O4, O5 How does the pace factor market and institutional changes affect business groups’ internal markets? F2, F3, O4, O5 Why do business groups differ in their choice of internal markets, and what are the implications of these choices? F2, F3, O5, O6 What are the antecedents and consequences of business group corporate strategies, and how do these strategies evolve as country environments change? How does the evolution of business group corporate strategies impact performance? F3, O4, O5 In what ways do business group corporate strategies impact rivalry? F3, O4 In what ways does the business group structure outperform versus underperform other organizational forms in internationalization? F2, F3, O4 What motivates and results from different forms of business group restructuring? F3, O4, O5 What are the roles of different strategic in business group corporate strategies? F1, F2, F3, O5 How does business group corporate governance affect strategy, performance, and the appropriation of financial returns? To what extent and under what conditions do ownership concentration, pyramidal ownership, and different ownership types shape value creation and appropriation in business groups? How do intragroup vertical and horizontal ties in business groups shape affiliate access to resources? In what ways do affiliates’ boards of directors shape business group strategy? How do different corporate governance practices work together in business groups? How do business groups impact economic development and innovation? What contingencies affect the impact of business groups on economic development and innovation? Under what conditions do business groups generate first-mover advantages? What advantages and disadvantages do business groups have for different types of innovation? What types of technologies are more amendable to innovation in business groups? a

F1, O4 F1, F2, F3 F1, F2, F3, O4 F1, F3

F3, O5, O6 F2, F3, O6 F2, F3, O6 F1, F2, F3, O6

The information in this column corresponds to the labels in Fig. 1.

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2. How do business groups’ internal markets benefit versus harm affiliate and business group performance, and how do market imperfections shape these relationships? Scholars argue that many business groups were founded to address two types of market imperfections. First, weak factor markets reduce firms’ access to financial, human, technological, and other resources. Second, weak institutions make it difficult to execute transactions, as laws for safeguarding exchanges (e.g., purchasing supplies) are ineffective or poorly enforced. Business groups can circumvent these market imperfections by establishing internal markets through which affiliates share and co-develop resources with other affiliates in the group. Formal and informal governance within business groups discourage opportunism, promote collaboration and social cohesion, and support resource exchanges. In this way, business groups are solutions to market imperfections: internal markets substitute for weak factor markets and institutions and, in turn, can serve as competitive advantages over firms that lack such markets (Khanna & Palepu, 1997; Holmes, Zahra, Hoskisson, DeGhetto, & Sutton, 2016; Leff, 1978). This substitution view of internal markets has received empirical support in several case studies. These studies reveal that business groups form, grow, and expand into new product and international markets by using their affiliates to exploit new market opportunities and/or to supply needed resources, particularly when factor markets and institutions are weak. Case studies on LG and Hyundai (Kim, Hoskisson, Tihanyi, & Hong, 2004a), Tata (Khanna & Palepu, 1997), and 19th-century British merchants (Jones & Colpan, 2010) support this use of internal markets. Relatedly, business groups are more common in emerging and lateindustrializing countries, which historically have had weaker factor markets and institutions. For example, Khanna and Yafeh (2005) estimate that, in the late 20th century, between 20% (in Chile) and 67% (in Indonesia) of registered firms in emerging economies were in business groups. Similarly, Colpan and Hikino (2010) report that, around 2007, 53 of the 78 largest enterprises in late-industrializing countries were business groups. However, in contrast to the substitution view, business groups also exist in many long-industrialized countries, such as Sweden, Germany (Collin, 1998), Switzerland (Morck, 2010), and Italy (Iacobucci & Rosa, 2010). Research identifies three types of internal markets in business groups: internal capital markets, internal labor markets, and intragroup trade markets. It also reveals ways in which internal markets can both create and destroy value7 (F2, F3, O4, O5). 2.1. Internal capital markets Business groups use internal capital markets to transfer financial resources among affiliates. By addressing capital market and institutional voids that hinder contract enforcement, limit capital availability, and raise transaction and financing costs, internal capital markets can improve business group flexibility and speed. In Japan, for example, business groups often contain banks that offer credit and equity financing to affiliates (Gerlach, 1992; Lincoln, Gerlach, & Takahashi, 1992). Other mechanisms—including loans (Gopalan, Nanda, & Seru, 2007), dividend payouts (Gopalan, Nanda, & Seru, 2014), and related-party transactions

7 We use the term value in a broad sense to include competitive and collaborative advantages that produce outcomes (e.g., financial returns) valued by stakeholders. In turn, value can be reflected in profits, growth, stock price, social outcomes, and so on. Thus, the focus of value differs across stakeholders. Our treatment of value is consistent with that of Menz, Kunisch, and Collis (2015), who reviewed the value that headquarters adds in standalone firms that compete in multiple markets.

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(Jia, Shi, & Wang, 2013)—allow non-bank affiliates to share financial resources among themselves as well. Affiliates also can share creditworthiness if they can draw on these internal capital markets to meet debt obligations. Supporting these arguments, Choi, Yoshikawa, Zahra, and Han (2014) show that the positive link between firm cash flows and R&D intensity was weaker for chaebol affiliates than for standalone firms when Korea’s capital markets were less developed. More generally, internal capital markets may benefit performance by improving affiliates’ flexibility and ability to invest beyond their own liquidity constraints (Belenzon et al., 2013). However, internal capital markets also can be harmful. First, these markets enable propping up: business groups use internal capital markets to move financial resources from better to worse performing affiliates (Gedajlovic & Shapiro, 2002; Lincoln, Gerlach, & Ahmadjian. 1996). Evidence of such profit redistributions exists in many countries, including China (Jia et al., 2013), India (George & Kabir, 2008), Japan (Gedajlovic & Shapiro, 2002), Korea (Chang & Hong, 2000), and Russia (Estrin, Poukliakova, & Shapiro, 2009). Propping up distorts incentives and may create opportunity costs if it reduces the capital that is available for affiliates in more promising product or geographic markets. Second, they enable tunneling: powerful owners use internal capital markets to move profits to affiliates where owners’ cash flow rights are greater. Powerful owners can use dividend payouts among affiliates, for instance, for this purpose. As with propping up, scholars find tunneling in many countries (Atanasov, Black, Ciccotello, & Gyoshev, 2010; Baek, Kang, & Lee, 2006; Bertrand, Mehta, & Mullainathan, 2002). 2.2. Internal labor markets Business groups also establish internal labor markets to manage recruitment, training, and job transfers among affiliates. These markets supplement factor markets and institutions that support education and human capital development. Research suggests that internal labor markets create value in at least four ways. First, they allow business groups to leverage labor across affiliates, which can motivate employee training (Khanna & Palepu, 1997). Second, they provide promotion and experience opportunities for current and potential employees, especially in multiproduct or internationalized business groups, thus aiding recruitment and retention (Kim, 2010). Third, they allow business groups to allocate human capital to product and geographic markets where it is needed most ( Belenzon & Tsolmon, 2016). Fourth, employee transfers build social relationships and transfer knowledge within the group (Ahmadjian & Lincoln, 2001). Several studies support these arguments. Arguing that internal labor markets groom and generate future leaders, Chang and Shin (2006) find that chaebol affiliates were more likely to replace poorly performing CEOs than standalone firms were. Further, arguing that executives appointed from internal labor markets enter their new roles with knowledge of business group processes and intragroup networks Chung and Luo (2013) find evidence that outside CEO succession is less beneficial in business groups. Similarly, Belderbos and Heijltjes (2005) show that extensive intragroup trade in host countries increases the likelihood a keiretsu will appoint Japanese expatriates to lead its foreign affiliates. Related research suggests that transferred employees’ knowledge and networks enrich intragroup technology collaborations. Specifically, Mursitama (2006) argues that internal labor markets help build absorptive capacity between the different affiliates, thus improving the productivity of their R&D. Likewise, research suggests that business groups move managers and engineers among affiliates to facilitate knowledge transfer, technology collaboration, and new product design (Ahmadjian &

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Lincoln, 2001; Zhao, Anand, & Mitchell, 2005). Lastly, Belenzon and Tsolmon (2016) show that business groups are more common and perform better in countries with labor laws that limit downsizing, suggesting that the flexibility to reassign employees through internal labor markets is important. 2.3. Intragroup trade markets Affiliates use intragroup trade markets to exchange inputs, distribution capabilities, and other services. Access to familiar within-group partners reduces search and negotiation costs, holdup risk, and supply shortages that hinder growth and diversification. For example, Wan (2005) argues that formal governance processes, shared group identifies, and relational ties promote solidarity, reduce transaction costs, and discourage opportunism among affiliates. Relatedly, Toulan (2002) finds that Argentinian business groups turn to intragroup trade when government policies weaken the country’s independent supplier base. Intragroup trade also enables vertical integration and market power, which helps business groups enter and compete in new product and geographic markets. In support, qualitative studies reveal that intragroup trade encouraged internationalizing keiretsu affiliates to coordinate their supply chains, develop relationshipspecific assets, and innovate, which helped them outperform firms relying on arm’s length contracting or hierarchy (Bolton, Malmrose, & Ouchi, 1994; Dyer, 1996). However, business groups also can use intragroup trade for propping up and tunneling, often by manipulating transfer prices. Consistent with propping up, Lincoln et al. (1996) find that the positive relationship between prior and current profitability is weaker for affiliates that are involved more heavily in intragroup trade markets, suggesting that intragroup trade redistributes wealth from stronger to weaker affiliates. Similarly, Chang and Hong (2000) argue that in buyer-seller relationships within chaebol, sellers tend to be privately held and buyers tend to have more outside minority investors. Consistent with tunneling, they find that intragroup sales and purchases relate positively and negatively to affiliate profitability, respectively, which suggests that groups can use intragroup trade to expropriate wealth from outside minority owners. 2.4. Future research Our review indicates that internal markets are important in business groups and reveals five opportunities for future research on their benefits and costs. First, how do internal markets work together to affect business group strategy and performance? Complementarities among internal markets may enrich value creation. Internal capital markets, for example, can fund manufacturing, distribution, and R&D facilities used in intragroup trade. Similarly, as noted, employees transferred via internal labor markets can support intragroup trade. However, using some internal markets to support others also may allow expropriation by reducing transparency, particularly if corporate governance is weak, increase management complexity, and create interdependencies in which the failure of one affiliate threatens others. Because operating internal markets across country borders compounds these concerns, they are especially relevant to internationalized business groups. Thus, scholars should examine combinations of internal markets, especially in volatile markets and in internationalized business groups (F1, F2, F3, O4). Second, do stronger factor markets and institutions weaken or strengthen business groups over time? An extension of the substitution view described above is that business groups’ internal market advantages dissipate as factor markets and institutions improve (Chang, 2003; Khanna & Palepu, 1999; Kim, Kim, &

Hoskisson, 2010). Indeed, some find that affiliates earn outperform standalone firms when market imperfections are greater, with the effect weakening (Chang & Hong, 2002; Khanna & Palepu, 2000b) or perhaps turning negative (Lee, Peng, & Lee, 2008) as imperfections subside. However, others find that business groups benefit as factor markets and institutions mature. According to this view, their scale, scope, reputation, experience, and networks help them to move into product and geographic markets quickly and effectively, attract resources, and secure favorable government policies, deepening their advantages (Carney, 2008; Khanna, 2015; Manikandan & Ramachandran, 2015). As India’s capital markets and institutions have developed, for example, publicly-traded affiliates have experienced greater ROA (Chittoor, Kale, & Puranam, 2015c) and Tobin’s Q (Manikandan & Ramachandran, 2015) and business groups have grown larger and more diversified (Siegel & Choudhury, 2012). Attempting to reconcile the conflicting findings, Chari and Banalieva (2015) find a U-shaped link between promarket reforms and affiliate profitability. These findings highlight a need for more research on the coevolution of market imperfections and internal markets. For example, internationalized business groups may be less dependent on and, thus, less affected by factor market and institutional changes in their home markets. Moreover, internationalization may provide them with resources, independence, and knowledge to push for domestic market reforms that they desire (F2, F3, O4, O5). Third, how do maturing factor markets and institutions affect business groups differently? Factor markets and institutions perform different roles and can evolve independently (Hoskisson, Wright, Filatotchev, & Peng, 2013; Wan & Hoskisson, 2003). Carney et al.’s (2011) meta-analyses, for example, show that affiliates outperform standalone firms when financial and labor markets are weak, but group membership has null or negative effects when legal institutions are weak. However, standalone firms may be unable to capitalize on stronger factor markets if weak institutions prevent them from conducting exchanges. Further, as business groups internationalize, foreign factor markets and institutions have more influence on their growth and competitiveness at home. Expanding into developed economies, for instance, is a way to recruit well-trained foreign workers that can enrich domestic competitiveness. Thus, future research should adopt finer-grained measures of market imperfections (F3, O4, O5). Fourth, and similarly, how does the pace of factor market and institutional changes affect business groups’ internal markets? External shocks (e.g., financial crises), for example, produce punctuated and significant changes in factor markets and institutions. Being less exposed to such shocks, internationalized business groups may respond more slowly. Likewise, some business groups have competitive advantages that allow them to resist altering internal markets to respond to shocks in the short term (McGuire & Dow, 2003). Over time, however, business groups may need to make more changes than smaller, more specialized firms (Chizema & Kim, 2010). Different internal markets also may create different costs as factor markets and institutions mature. Intragroup trade, for instance, may reduce exposure to external technologies, making it more difficult for groups to adapt. Relatedly, internal labor markets can induce nepotism, which rewards influence tactics and loyalty to other managers’ private interests and may prevent the promotion of qualified managers, especially those with limited within-group experience. In this way, internal labor markets might limit business group adaptability to changing factor markets and institutions. Although scholars have rarely examined this aspect of internal markets, it may be that internal labor markets are more problematic for internationalized business groups, which probably need more diverse experiences and innovation to compete (F2, F3, O4, O5).

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Fifth, why do business groups differ in their choice of internal markets, and what are the implications of these choices? Internal markets probably exhibit path dependence: because of prior market imperfections and strategic choices, business groups likely develop different combinations of internal markets, which in turn lead to different strategic choices in the future. For instance, internal capital markets may create incentives and capabilities to internationalize, internal labor markets may be more helpful in knowledge-intensive industries that require greater human capital development, and intragroup trade markets may support related diversification. Moreover, especially if they enter developed economies, business groups may turn to foreign factor markets to supplant or complement their internal markets. Thus, as the following sections suggest, we need richer and more dynamic approaches to explore internal markets and how they relate to differences in business group growth, product and international scope, corporate governance, performance, economic impact, and innovation (F2, F3, O5, O6). 3. What are the antecedents and consequences of business groups’ corporate strategies, and how do these strategies evolve as country environments change? Ongoing changes in many countries’ factors markets and institutions, along with business groups’ growth and global presence, highlight the importance of their corporate strategies. The antecedents and outcomes of these strategies, specifically regarding product and international diversification, are subjects of significant research and debate (F2, F3, O4, O5).

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groups’ exposure to systemic economy-wide shocks, perhaps increasing risk and reducing affiliate performance. Thus, product diversification does not always provide the intended benefits. Consistent with this observation, Carney et al.’s (2011) meta-analysis shows that: (1) business group product diversification relates negatively to group performance and (2) affiliate product diversification relates negatively to affiliate performance. Restructuring, in turn, can be an important way for business groups and their affiliates to address subpar performance. Restructuring allows business groups to reconfigure their portfolio to pursue new opportunities or streamline operations (Hoskisson Johnson, Yiu, & Wan, 2001). For instance, Meyer’s (2006) case studies reveal that eliminating domestic product lines frees up capital for internationalization. More generally, Hoskisson, Johnson, Tihanyi, and White (2005) identify variables—such as factor market and institutional changes and managerial entrenchment (Hoskisson et al., 2001)—that affect internal markets’ benefits and costs and, in turn, business groups’ willingness to restructure (see also Filatotchev, Wright, Uhlenbruck, Tihanyi, & Hoskisson, 2003). However, whereas some show that factor market and institutional changes promote restructuring (Hoskisson, Cannella, Tihanyi, & Faraci, 2004; Park & Kim, 2008), others show that they can reduce it (Wu & Delios, 2009). Also, arguing that restructuring creates conflict in Taiwan because cultural norms favor equal inheritances, Chung and Luo (2008b) find that family-owned business groups engage in fewer unrelated acquisitions and divestitures in that country. 3.2. International diversification

3.1. Product diversification Research identifies three drivers of product diversification in business groups. First, product diversification creates stronger and more flexible internal markets to support growth (Khanna & Palepu, 1997; Morck, 2010: 609; Kim et al., 2004a). In support, Manikandan and Ramachandran (2015) find that business group product diversification increases growth opportunities in affiliates. Similarly, arguing that broader product portfolios expand internal capital markets, Belenzon et al. (2013) find that capital-intensive industries in countries with weak capital markets contained a higher portion of affiliates from more product-diversified business groups. Moreover, Khanna and Palepu (2000a, 2000b) argue that leveraging internal markets across sectors helps business groups recoup the costs of creating and managing such markets. In turn, they find that diversification has U-shaped relations with ROA. Second, product diversification allows business groups to extend competitive advantages into new markets (Wan, Hoskisson, Short, & Yiu, 2011). Chang and Hong (2000), for example, find evidence that business groups’ leverage financial and intangible resources (e.g., brands) to create competitive advantage in several industries, especially when external financing is limited and when global competition increases. Likewise, Lamin (2013) finds that business group product diversification helps individual Indian affiliates serve more product markets and that institutional changes enabling more competition strengthen this effect. Third, business groups may use product diversification to reduce risk by spreading their investments across a portfolio of businesses (Mahmood & Mitchell, 2004). This benefit should be more important in economies that are less developed or more volatile. However, studying twelve emerging economies, Khanna and Yafeh (2005) find that the standard deviation of ROA over time was not consistently lower in affiliates than in standalone firms, regardless of capital market development or institutional protections for investors. Indeed, Chakrabarti, Singh, and Mahmood (2007) find that product diversification can exacerbate business

Consistent with the growth and global presence of many business groups, research on business group international diversification has grown recently. It has coalesced in three areas: internationalization, location, and entry modes. First, scholars have debated business groups’ advantages and disadvantages for internationalization. Internal markets and intragroup learning (e.g., market entry experience) fuel internationalization. However, complacency, complexity, and inflexibility can limit it, especially if product diversification is high (Chari, 2013; Kumar, Gaur, & Pattnaik, 2012). Reflecting the conflicting arguments, some show that affiliates are more likely to internationalize than standalone firms are (Singh & Gaur, 2013; Kim, Hoskisson, & Lee, 2015), but others show the opposite (Chittoor Sarkar, Ray, & Aulakh, 2009; Gaur & Delios, 2015). Affiliates’ responsibilities to other business group members shed additional light on these issues. Some research shows that affiliates cannot satisfy foreign demand because they use their production capacity to supply their fellow affiliates. Indeed, some keiretsu affiliates export less than standalone firms (Gerringer, Tallman, & Olsen, 2000), especially if they are suppliers in intragroup trade (Hundley & Jacobson, 1998). Other studies show that affiliates internationalize to support each another. Research shows, for example, that core keiretsu firms’ internationalization encourages their within-keiretsu suppliers to follow (Banerji & Sambharya, 1996), especially if they hold equity in the suppliers (Martin, Swaminathan, & Mitchell, 1998). Perhaps as a result, research also shows that powerful keiretsu affiliates experience more growth from internationalization than less powerful affiliates do (Kim, Hoskisson, & Wan, 2004b). Other studies reveal complex roles for business group resources in internationalization. Tan and Meyer (2010) argue that many business group resources—such as domestic political ties and reputations (Guillén, 2000)—transfer poorly into foreign markets. In support, they find that managers’ embeddedness in domestic networks reduce internationalization in Taiwanese business

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groups. Likewise, Jean, Tan, and Sinkovics (2011) and Pananond (2007) show that managers’ networks have a weaker effect on internationalization as business groups’ technical expertise grows. Supporting the value of internal markets, research suggests that foreign technology and financing (Chittoor et al., 2009) and firm R&D (Singh & Gaur, 2013) drive internationalization less in affiliates than in standalone firms. Related studies show that internationalization relates positively to the international experience of fellow affiliates (Elango & Pattnaik, 2011; Gaur, Kumar, & Singh, 2014). Lastly, studies show that firm technology and marketing resources (Gaur et al., 2014) and innovativeness (Yi, Wang, & Kaufouros, 2013) may promote internationalization more in affiliates than standalone firms, suggesting that internal markets can also supply complementary resources that spur internationalization. Given the complexities of internationalization, scholars also examine its performance consequences. Carney et al.’s (2011) meta-analysis shows that internationalization and affiliate performance are not related linearly. Others consider more complex relationships and different levels of analysis. Arguing that internationalization demands investments in learning, startup, and administrations, Contractor, Kumar, and Kundu (2007) and Ma, Yiu, and Zhou (2014) show that internationalization has a Ushaped effect on affiliate performance. In addition, scholars studying foreign affiliate performance and survival show that business groups’ experiences with market transitions in their home economies improves foreign affiliate performance in economies undergoing similar changes (Del Sol & Kogan, 2007; Liao, 2015). Further, foreign affiliates have lower exit rates in lessdeveloped countries (Garg & Delios, 2007) and a greater propensity to survive host country crises (Chung, Lu, & Beamish, 2008) than do standalone firms’ subsidiaries. Lastly, scholars examine location and entry modes. This research suggests that business group internal markets, political skills, and experience equip affiliates for internationalization. Belderbos, van Olffen, and Zho (2011), for example, find keiretsu affiliates to follow fellow affiliates into particular geographic regions when intragroup trade is higher. Moreover, Alcantara and Mitsuhashi (2012) find that small keiretsu affiliates are more likely to invest in politically unstable countries than standalone firms are. Similarly, arguing that affiliates can draw on their fellow affiliates’ experience to mitigate host country risk, Delios and Henisz (2000) find that keiretsu membership diminishes the impact of such risk on firms’ equity stakes in foreign subsidiaries. In addition, evidence suggests that chaebol affiliates’ experience with particular countries (Guillén, 2002) and entry modes (Guillén, 2003) increase the likelihood that their fellow affiliates enter the same countries and use the same entry modes. Consistent with these observations, Indian affiliates make more international acquisitions when their own CEOs have little international experience (Chittoor, Aulakh, & Ray, 2015b), make acquisitions faster during merger waves (Popli & Sinha, 2014), make larger acquisitions in target countries where fellow affiliates have acquisition experience (Elango & Pattnaik, 2011), and generate larger financial returns from acquisitions when fellow affiliates have acquisition experience (Gubbi & Elango, 2016). Thus, business group resources appear to influence affiliates location and entry mode decisions. 3.3. Future research Our review reveals five research questions that can shed new light on business groups’ corporate strategies. First, how does the evolution of business group corporate strategies impact performance? We need between- and within-country studies that examine business groups longitudinally. As economies develop, for example, related diversification may replace unrelated diversification

and vertical integration (Hoskisson, Eden, Lau, & Wright, 2000). Though few consider how such strategic changes impact performance, we speculate that business groups that have relied on broad portfolios for longer time periods may have difficulty adopting a narrower focus and creating synergies via related diversification, at least initially. In addition, related diversification and vertical integration require reciprocal and serial linkages, respectively, and may depend on affiliates’ individual capabilities and the competition they face (F3, O4, O5). In this respect, in what ways do business group corporate strategies impact performance by shaping rivalry? Multimarket competition among business groups, for instance, may produce long-lasting mutual forbearance that benefits their affiliates. At the same time, access to internal markets may encourage affiliates to compete aggressively with standalone firms, which may hesitate to retaliate if doing so could trigger responses from other affiliates as well (F3, O4). Third, in what ways does the business group structure outperform versus underperform other organizational forms in internationalization? Though most research on international strategy focuses on multidivisional firms from developed economies, business groups may have different advantages and disadvantages. The semiautonomous nature of affiliates, for example, may help business groups decouple operations across borders (e.g., use different strategies across markets), achieve local responsiveness, and deal with diverse institutional environments better. Conversely, relying on internal markets may limit their access to local partners and, perhaps, location advantages. Thus, it is important to compare international strategies in business groups and hierarchical multinationals (Delios & Ma, 2010), though few studies have done so (F2, F3, O4). Fourth, what motivates and results from different forms of business group restructuring? Although portfolio expansion and contraction are different, many studies include both in the same restructuring measure. Adding affiliates requires financial capital, especially in foreign markets, but groups may use this approach for diversification. Shedding affiliates, by contrast, often is a refocusing strategy used to free up financial capital and reduce diversification, often following shocks, regulatory changes, and greater competition. Thus, measures should separate these two forms of restructuring. Similarly, though different forms of contraction— such as spinoffs, divestitures, buyouts, or downsizing—are associated with different profits, risks, timetables, and regulatory and resource requirements in home and host countries, we know little about when and why business groups choose one versus the others. For example, affiliate spinoffs might be more profitable in internationalized business groups that can list the affiliates on better-capitalized and liquid financial markets in developed economies (F3, O4, O5). Fifth, what are the roles of different strategic actions in business groups’ corporate strategies? Chen, Chittoor, and Vissa (2015) argue that multiplex ties in business groups equip managers to forge and exploit ties with outside firms. Research also shows that alliances with developed-economy firms help business groups gain technology (Zhao, Anand, & Mitchell, 2005) and help the foreign firms navigate host country regulations (Lu & Ma, 2008). Future research should examine how such alliances help business groups internationalize. Further, emerging economy governments sometimes help local firms make international acquisitions, especially of targets in developed economies (Boddewyn, 2016). Despite providing access to new technology and markets, such acquisitions pose special integration challenges in business groups that may reduce flexibility and create future costs. Acquisition integration— including the choice of full or partial ownership—is challenging in business groups, due to the complexity, informality, and long-term nature of the multiplex ties inside them. It may be difficult for

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newly acquired affiliates, for example, to embed into this network. Though it can shape future growth and internationalization, few studies have considered acquisition integration in this context. Lastly, dominant owners may receive benefits from strategic actions that do not accrue to minority owners, which suggests that some allow tunneling (Bae, Kang, & Kim, 2002), a principal– principal agency issue addressed further in the following section (F1, F2, F3, O5). 4. How does business group corporate governance affect strategy, performance, and the appropriation of financial returns? Corporate governance shapes how business groups allocate resources and, in turn, their internal markets, corporate strategies, growth, innovation, and performance. Business groups are interesting settings for corporate governance research for three reasons. First, they shed light on principal–principal conflicts between controlling and minority owners also (Morck, Wolfenzon, & Yeung, 2005; Peng & Jiang, 2010; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). Second, as noted, dual control systems complicate corporate governance. Third, corporate governance shapes whether business groups’ unique features (e.g., multiple affiliates) serve to create (e.g., support innovation) versus destroy (e.g., enable tunneling) value (F1, F2, O5, O6). Our review reveals that most research in this area focuses on three aspects of business group ownership: ownership concentration, pyramidal ownership, and ownership type. Some research also addresses a fourth aspect of business group governance: boards of directors. 4.1. Ownership concentration Ownership concentration, which exists when fewer shareholders hold larger portions of a firm’s equity, has benefits. Due to the size of their holdings, concentrated owners may have more incentive and ability to monitor managers and pursue profitable growth. In fact, research shows that ownership concentration relates positively to firm profitability in Japan (Gedajlovic & Shapiro, 2002) and stock market value in Korea (Baek, Kang, & Park, 2004). However, in business groups, expropriation risks may offset these benefits, especially if institutions to protect minority owners are weak (Young et al., 2008). Jiang, Lee, and Yue (2010) find that concentrated owners in China use intragroup loans to tunnel wealth from minority owners. The firms making the loans, in turn, produce lower profits and are more likely to delist. Also, Chang (2003) reports that concentrated owners use inside information to acquire equity in affiliates with strong performance prospects, which prevents outsiders from earning comparable returns. More generally, studies show that group affiliation may weaken the positive effects of ownership concentration on firm profits and market value (Baek et al., 2004; Joh, 2003). Growth and diversification, in turn, may simply expand concentrated owners’ options to expropriate. 4.2. Pyramidal ownership Pyramidal ownership exists when owners have controlling positions in some affiliates, which own portions of other affiliates, and so on (Peng & Jiang, 2010). There are conflicting views about pyramidal ownership. On the positive side, it creates an additional layer of corporate governance that allows owners to organize many affiliates while holding majority positions only in those at the top of the pyramid. In this way, pyramids enlarge the number of affiliates that owners control, which can enrich internal markets and support growth, risk sharing, market power, and innovation.

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Indeed, research shows that pyramidal ownership can increase affiliate R&D (Guzzini & Iacobucci, 2014) and capital investments (Masulis, Pham, & Zein, 2011). On the negative side, pyramids may enable opportunism. Specifically, an investor who owns 75% of Affiliate A, which owns 65% of Affiliate B, can leverage his/her control to transfer B’s profits to A, thus expropriating B’s minority owners (Peng & Jiang, 2010). Arguing that pyramids facilitate tunneling, scholars find that standalone firms invest more capital raised at IPO (Carpenter & Rondi, 2006) and from the state (Inoue, Lazzarini, & Musacchio, 2013) than affiliates in pyramidal groups do. Outside investors, in turn, may discount the stock of firms that are in pyramids or at risk of becoming part of them (Morck et al., 2005). Lastly, pyramids concentrate power and capital in the hands of an elite few (Collin, 1998), making it difficult for firms outside pyramids to mobilize the financial and institutional support and resources they need (Morck, Yavuz, & Yeung, 2011). For example, the ten largest family-owned pyramids in Belgium, Canada, France, and Portugal control about 30–40% of the market capitalization in each country, and the largest family-owned pyramid in Sweden controls about 50% (Morck, 2010). The following section considers family ownership in greater detail. 4.3. Ownership type Research on ownership type examines three main types of owners in business groups: family owners, state owners, and institutional owners (e.g., banks and foreign firms). 4.3.1. Family owners Many of the largest business groups in late-industrializing countries are family-owned (Colpan & Hikino, 2010). However, scholars debate the merits of family ownership in business groups. On the positive side, family knowledge of, socio-emotional attachment to, and financial commitment to business groups can promote better corporate governance and stewardship in some cases (Carney, 2005; Cuervo-Cazurra, 2006). Kim et al. (2008), for example, find that chaebol invest more slack into R&D when family ownership is high. Scholars also argue that families have business and political ties that pass from generation to generation, providing cohesion and lasting power (Fracchia, Mesquita, & Quiroga, 2010; Morck & Yeung, 2004; Schneider, 2010). Lastly, case studies reveal that family ties among affiliate executives promote coordination, resource pooling, and information sharing and, in turn, help business groups identify and exploit growth and innovation opportunities (Cruz, Howorth, & Hamilton, 2013). In this regard, Baker, Gedajlovic, and Lubatkin (2005: 499) argue that family-owned business groups in emerging economies are an “entrepreneurial response to . . . inadequate local resources and infrastructure." Other research notes disadvantages of family ownership in business groups. Scholars argue that family-owned business groups may create diversified portfolios of several affiliates to stabilize earnings and survival, provide employment and inheritances for heirs, and secure wealth and non-pecuniary benefits at the expense of minority owners (Bertrand & Schoar, 2006; Filatotchev & Wright, 2011). Placing family members on affiliate executive teams also reduces the separation of ownership and control and may hinder the recruitment and retention of outsiders (Morck, 2010; Üsdiken, 2010), perhaps reducing risk taking and innovation. Consistent with these views, scholars find that familyowned business groups in East Asia have faced higher capital costs since the Asian Financial Crisis (Boubakri, Guedhami, & Mishra, 2010) and that some foreign firms avoid partnering with familyowned and -managed groups (Luo, Chung, & Sobczak, 2009). Thus, family ownership may reduce access to human, financial, and

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technological resources. Moreover, Luo and Chung (2005) find that very high levels of family ownership reduced business group performance in Taiwan following factor market and institutional reforms in that country. 4.3.2. State owners Many business groups also feature state owners. For instance, all of the major business groups in China are state-owned (Colpan & Hikino, 2010). State-owned business groups have preferred access to government resources, such as loans, contracts, and licenses. Though empirical research is scarce, scholars have identified drawbacks of state ownership in business groups. Ramaswamy, Li, and Veliyath (2002) argue that state employees lack financial incentives to monitor effectively. Further, Hoskisson et al. (2005) and Yiu, Hoskisson, Bruton, and Lu (2014) argue that state-owned business groups’ financial capital often funds political goals (e.g., job creation). State ownership also insulates business groups from competition, as governments can limit the competition groups face and bailout groups if performance is poor. As a result, many state-owned business groups lack incentives and capabilities to increase earnings, innovate, and enter foreign markets where the state owners have less influence. Similarly, Yiu et al. (2005) find that state-ownership reduces business group profitability. 4.3.3. Institutional owners Institutional owners also play important roles in business groups. First, banks are important institutional owners in many countries, notably Japan (Gerlach, 1992). Banks provide financial capital and corporate governance and, thus, shape affiliates’ growth and investments (Lincoln et al., 1992; Rubach & Sebora, 1998). In Japan, for example, banks serve as shareholders and creditors and hold board seats (Gerlach, 1992). Wan, Yiu, Hoskisson, and Kim (2008) argue that these multiplex ties provide information that helps banks monitor and intervene in affiliates (see also Lincoln & Shimotani, 2010). Partly as a result, affiliates’ failure reflects poorly on the banks also. Consistent with these arguments, Wan et al. (2008) find that standalone banks outperform keiretsu banks when contractions in the Japanese economy increase the need for bailouts. Foreign institutional owners also are important. Often from Western countries, they tend to be more independent, engaged, and short-term oriented; to push for more transparency, focus, risk, and earnings; to have greater technical and monitoring expertise and resources; and to sell when dissatisfied (Ahmadjian & Robbins, 2005; Kim et al., 2008). Consistent with this view, studies show that such foreign investors pressure business groups to downscope (Chung & Luo, 2008b), downsize (Ahmadjian & Robbins, 2005), pursue related diversification (Khanna & Palepu, 1997), and internationalize (Bhaumik, Driffield, & Pal, 2010). In addition, George and Kabir (2012) find that foreign ownership may strengthen the performance benefits of product diversification in Indian affiliates. However, some business groups resist pressure from foreign owners. Ahmadjian and Robbins (2005) find that the effect of foreign owners on keiretsu affiliate restructuring is weaker when fellow affiliates and banks hold more equity. Likewise, Chittoor et al. (2015b) find that foreign owners promote international acquisitions by Indian firms, but the effect is weaker for affiliates than for standalone firms. 4.4. Boards of directors Khanna and Rivkin (2006) find that patterns of interlocking directors help define business group boundaries. However, scholars debate the roles and effectiveness of boards of directors in business groups. On one hand, boards may benefit business

groups in several ways. First, they provide decision-making input that supplements owners’ formal control. In support, scholars find that business group banks appoint people to the boards of affiliates where they hold equity or make loans (Ahmadjian & Lincoln, 2001; Lincoln et al., 1992). Second, boards help affiliates conduct intragroup exchange. In particular, research suggests that interlocking directors help affiliates share resources (Lee & Kang, 2010; Mahmood, Zhu, & Zajac, 2011), monitor one another, resolve conflict, and execute transactions (Lincoln et al., 1992; Lincoln et al., 1996). However, some question the effectiveness of affiliate boards. Boyd and Hoskisson (2010) suggest that many simply confirm and legitimize managers’ decisions, often with little input or counsel. Others suggest that interlocking directors limit the influence of minority investors and, in turn, enable opportunism. In support, Chizema and Kim (2010) show that chaebol affiliates have been forced to include more outside members in the wake of institutional reforms in Korea. 4.5. Future research This review reveals four future research opportunities about business group corporate governance. First, in light of opposing views about the ownership conditions reviewed above, it may be fruitful to examine them under different contingencies: to what extent and under what conditions do ownership concentration, pyramidal ownership, and different ownership types shape value creation and appropriation in business groups? Meta-analyses may be useful for this question. Scholars also need to address owner motives. Riyanto and Toolsema (2008), for example, argue that some minority investors accept tunneling risks because they value propping up, as it provides insurance against affiliate bankruptcy, particularly if they can buy the equity at discounts. In other words, the same internal markets that create profits and stability also enable opportunism, underscoring the importance of owner motives (F1, O4). Second, how do intragroup vertical and horizontal ties in business groups shape affiliate access to resources? Whereas vertical ties reflect ownership and control, horizontal ties among affiliates promote cohesion and embeddedness. For instance, Yiu, Ng, and Ma (2013) find evidence that vertical (horizontal) ties promote centralization (collaboration), scale (scope) economies, and market-seeking (asset-seeking) international strategies. By extension, we argue that related diversification or innovation may require combinations of vertical and horizontal ties to fuel coordination, synergy, and knowledge sharing. In this regard, although many conflicts of interest exist in business groups (e.g., affiliates may be creditors, shareholders, customers, and suppliers simultaneously; Prowse, 1992), particularly if they are in many industries and countries, we have limited knowledge of how vertical and horizontal ties resolve conflicts. Thus, we need further research on vertical and horizontal ties inside business groups (F1, F2, F3). Third, in this regard, in what ways do affiliate boards of directors shape business group strategy? Boyd and Hoskisson (2010: 672) argue, for example, that we still know little about the functioning of business group boards. For instance, do interlocking directors increase growth and financial performance by sharing information about best practices, new product and geographic markets, alliance partners, strategic actions, and so on? Do internal markets function more efficiently when supported by interlocking directors among the affiliates (F1, F2, F3, O4)? Fourth, and more generally, how do different corporate governance practices work together? Specifically, those used in concert with ownership—especially top management team composition (Üsdiken, 2010) and compensation—need more attention. For

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example, Lin (2016) shows that business groups’ core firms hold more equity in foreign affiliates that have less slack, productmarket expertise, and human capital, suggesting that groups use equity to control affiliates that are less self-sufficient. By extension, do business groups use top management teams and ownership as substitute means of control? In particular, family owners may appoint family members to lead affiliates where family ownership is smaller. Conversely, strategic complexity and competition may reduce family member executives, instead favoring outsiders with more diverse experiences (Chung & Luo, 2008a). Similarly, under what conditions do business groups transfer foreign executives from international affiliates to domestic affiliates? Moreover, might executives in foreign affiliates have more of their pay tied to affiliate performance when the business groups use multidomestic strategies, whereas such executives in business groups using global strategies have more of their pay tied to overall group performance? Lastly, might compensation packages limit executives’ equity positions in the affiliates most at risk of tunneling (F1, F3)? 5. How do business groups impact economic development and innovation? The long-term impact of business groups may hinge on their contribution to economic development and innovation, especially given the role of knowledge and high technology in the economy. Lacking strong entrepreneurial sectors, many countries turn to local business groups to spur economic development (Lu & Ma, 2008; Schneider, 2010). Business groups’ entry into product and geographic markets can help build soft infrastructures (e.g., supply chains) for future growth and innovation (Guillén, 2000; Mahmood & Mitchell, 2004). Over time, business groups’ internationalization also may improve countries’ access to foreign markets and resources. Once again, research on these topics has produced debate (F2, F3, O5, O6). 5.1. Economic development Scholars argue that business groups are vital in ‘stateengineered industrialization’ in many countries (Hobday & Colpan, 2010: 777). Governments use incentives (e.g., tax breaks), licenses, trade restrictions, and privatization to urge local business groups to invest in specific product markets and expand internationally (Keister, 2000; Morck, 2010). Chung (2001), for instance, shows that tax incentives to create new firms led to the formation of business groups in Taiwan, and Zhu and Chung (2014) show that political ties to the ruling party help Taiwanese groups secure resources and legitimacy to enter new industries. Likewise, Hobday and Colpan (2010) suggest that the Korean government encouraged chaebol to internationalize by tying subsidies to export targets. From the state’s perspective, business group scale and scope can be advantageous, because many products and services contain or use resources from more than one industry (e.g., computers need electronics, plastics, software, etc.). Governments also may find it easier to work with a few large business groups than with hundreds of smaller firms. By acting as agents of the state, business groups accumulate additional scale, scope, prestige, power, and capabilities (Delios & Ma, 2010; Schneider, 2010). Several case studies support this view. Dieleman and Sachs (2008a, 2008b), for example, document the relationship between the Salim Group and the Indonesian government. Salim used managers’ personal relationships with state officials to secure resources and access to markets. The state also helped fund Salim’s internationalization. In return, Salim helped develop important industries and implement state policies. Carrera, Mesquita,

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Perkins, and Vassolo (2003), Fisman and Khanna (2004), Kim (2010), and Miyajima and Kawamoto (2010) find similar patterns in the development of business groups in Argentina, India, Korea, and Japan, respectively. In this way, business groups can advance important outcomes, such as venture formation and job creation. Some also question whether business groups have positive economic impacts. Their size and importance help them accumulate power over standalone firms and perhaps the state, and they may use that power for political rents (Dieleman & Sachs, 2008a, 2008b; Majumdar & Bhattacharjee, 2014; Schneider, 2010). In particular, they may impede factor market and institutional reforms that could weaken them or strengthen rivals (Carney, 2008; Kim, 2010; Langlois, 2010). In fact, Guillén (2010) notes that some chaebol opposed institutional reforms meant to increase foreign competition and capital availability for non-chaebol firms. Relatedly, business groups affect outcomes of privatization, as they often acquire privatized firms (Aguilera & Crespi-Cladera, 2016). Moreover, Mahmood and Mitchell (2004) argue that business group power is an entry barrier that limits the founding of innovative new firms, hindering technology factor markets. In line with these views, studying 41 countries, Fogel (2006) shows that countries dominated by family-owned business groups have weaker capital markets and infrastructures and that their institutions are less efficient, more particularistic, and less supportive of new ventures. Similarly, studying 27 countries, Morck and Yeung (2004) show that family control is associated with more inflation and income inequality yet worse per capita income, and healthcare (see also Morck et al., 2005). Thus, although some business groups were founded to address market imperfections, they can perpetuate those imperfections over time. 5.2. Innovation As emerging economies mature and advanced technology becomes increasingly important to global competitiveness, the future growth, earnings, and internationalization of many business groups probably depend importantly on their ability to innovate. However, there are debates about whether the business group structure promotes or hinders innovation. On one hand, business groups create supportive “innovation infrastructures” (Mahmood & Mitchell, 2004: 1348). The availability of market information, research partners, and intellectual property protection inside business groups can support affiliate innovation, especially if factor markets and institutions are weak (Li & Kozhikode, 2009). Business group structures also preserve affiliates’ flexibility and incentives (Dyer, 1996) and create opportunities to leverage innovations across product and geographic markets. In support, Mahmood et al. (2011) find that multiplex ties in Taiwanese business groups promote affiliate innovativeness, and Yiu et al. (2014) find that formal and informal controls promote Chinese groups’ innovation and entrepreneurship. Similarly, Guzzini and Iacobucci (2014) show that affiliates near the top of Italian pyramidal business groups draw on lowertier affilaites’ resources to support R&D, and Lee, Park, Ghauri, and Park (2014) find that knowledge sharing among affiliates helps chaebol balance exploration and exploitaiton. Possibly, for these reasons, decades after industrialization began, some governments continue to use preferential state funding, intellectual property protection, and other policies to support business group innovation (Chang, Chung, & Mahmood, 2006). Business groups’ resources also help them secure and use external technology. Anderson, Sutherland, and Severe (2015) show that acquiring developed market firms increases Chinese business groups’ patenting in their home market. Further, arguing that affiliates build absorptive capacity by interacting with their fellow affiliates, De Beule and Sels (2016) find that acquisition

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announcements produce larger returns for Indian affiliates than standalone firms. Similarly, Chittoor, Aulakh, and Ray (2015a) show that technology imports (e.g., R&D equipment) increase R&D more in affiliates than standalone firms, indicating that business groups also provide complementary resources for innovation. Consistent with this view, Zhao et al. (2005) identify several methods, including manager transfers, that business groups acquire knowledge from international joint venture (IJV) partners and transfer it throughout the group. Relatedly, Perkins, Morck, and Yeung (2014) provide evidence that high-technology IJVs in Brazil are more likely to survive when both partners are from pyramids and are near the top of their group. Related research suggests that repeated entry into new product and geographic markets allows business groups to build and leverage entrepreneurial capabilities. Guillén (2000) argues that business groups learn to identify and exploit opportunities through experience, which leads to more growth and diversification.8 Similarly, Langlois (2010) argues that entering new markets enables founders to use and monetize their entrepreneurial judgment. In support, Lechner and Leyronas’s (2009) case studies reveal that entrepreneurs create business groups to build and leverage their entrepreneurial management capabilities, reputations, and networks across product and geographic markets. And, Iacobucci and Rosa’s (2005; [Iacobucci and Rosa, 2010]2010) provide qualitative and quantative evidence that founders in Italy open new affiliates to recruit, monitor, incentivize, and share risk with other entrepreneurs, raise capital, and tailor their strategies for particular markets. Lastly, Iona, Leonida, and Navarra (2013) show that innovation increases growth more in affilaites than standalone firms, especially when affiliates compete internationally. These studies suggest that business group structures can enrich flexibility, access to resources, and opportunity identification and exploitation. Others identify aspects of business groups that hinder innovation. Scholars argue that innovation is lower in business groups that are too diversified or that rely too heavily on internal markets, because diverse but related knowledge is needed for innovation. Lamin and Dunlap (2011), for example, find that Indian affiliates in moderately product-diversified business groups have more complex technical capabilities than do those in other groups. Similarly, Mahmood, Chung, and Mitchell (2013) find that moderate intragroup trade increases affiliate innovation, but too much intragroup trade hinders it, especially as factor markets and institutions mature. On a related note, arguing that Korea’s institutions historically supported innovation less actively than Taiwan’s, Chang et al. (2006) find that business group membership positively affects firm innovation in Korea and group unrelated diversification negatively affects it in Taiwan. 5.3. Future research The review reveals four opportunities for future research on the role of business groups in economic development and innovation. First, in light of the debates above, what contingencies affect the impact of business groups on economic development and innovation? In their review of finance and economics research, Khanna and Yafeh (2007) conclude that business groups are neither always beneficial nor always harmful to social welfare. Further research, including meta-analyses, may uncover factors

8 More specifically, he argues that business groups learn to conduct feasibility studies, acquire business licenses, build and staff facilities, secure capital, access needed technology and knowledge, establish supply and distribution channels, and so on.

that moderate business groups’ impact. For instance, business groups may benefit their home countries more when they pursue foreign markets, especially advanced economies. In particular, locally-focused business groups may have less incentive or ability to innovate, especially if they target large, state-protected, and lucrative emerging economies. Instead, to protect their interests, they may try to obstruct innovative smaller firms as well as constrain factor market and institutional development. In this regard, Gubbi, Aulakh, and Ray (2015) show that government policies targeting affiliates’ particular industries misalign affiliate and business group goals, reducing affiliates’ international search (F3, O5, O6). Second, under what conditions do business groups generate firstmover advantages? Whereas internal markets may allow them to mobilize resources to enter new product and geographic markets faster than do standalone firms, their scale, scope, and political influence may allow them to excel as second movers instead. Similarly, because intragroup knowledge sharing is less relevant for unrelated affiliates (Belenzon & Berkovitz, 2010), they may have fewer advantages in product or geographic markets that demand innovation (F2, F3, O6). Third, the impact of business groups on economic development and innovation may depend on the types of innovation they pursue: what advantages and disadvantages do business groups have for different types of innovation? Business groups can mobilize affiliate resources to produce not only radical innovations, but also incremental innovations that support and leverage the radical innovations across industries. Internationalized business groups may have further incentives and abilities for radical innovation, as they can amortize R&D across larger sale bases and use global markets to extend product life cycles. Conversely, sunk costs and managerial entrenchment in some business groups may intensify commitments to the status quo, making them reluctant to embrace change and invest in radical innovation (F2, F3, O6). Fourth, and relatedly, what types of technologies are more amendable to innovation in business groups? Technologies differ in how amendable they are to collaboration. Leveraging multiple affiliates’ capabilities may prove more beneficial when products integrate multiple technologies, which may explain why business groups often compete in complex manufacturing industries (Guillén, 2001). In addition, internal markets, shared histories, and shared governance may equip affiliates to collaborate on tacit technologies. Lastly, whereas internationalized business groups may gain new technologies, locating affiliates in different countries may hinder collaboration among them (F1, F2, F3, O6). 6. Discussion Business groups are an economically significant global phenomenon that are critically important in the economies of many countries. Because they are and because they increasingly have multinational foci, they warrant the attention of international strategy scholars. Motivated by the growth and internationalization of business groups, we reviewed business group research and offered a future research agenda, focusing primarily on their implications for international strategy. The review highlights three distinguishing and interrelated features of business groups that reflect the complexity of their structure. Reflecting this complexity, the review also notes that business groups have the potential to benefit and harm three key outcome variables studied in this literature. In this final part of review, we identified three methodological concerns (summarized in Table 2) that scholars need to address in future research that attempts to untangle some of theoretical and empirical conflicts and debates noted above.

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Table 2 Methodological concerns. Generalizability of Business Group Research across Countries  Factor markets and institutions are multidimensional and vary across countries.  Country culture may have effects beyond those of market imperfections.  Business groups differ systematically across countries. Endogeneity in Business Group Research  Culture, factor markets, institutions, business groups, and industry conditions may be endogenous.  There are several sources of endogeneity specific to business groups.  Consider two-stage regressions, instruments, subgroups, propensity score matching, carefully-chosen controls, fuzzy sets, and multi-level methods. Performance Measurement in Business Groups  Defining business group boundaries can be difficult.  Affiliates’ purposes vary.  Beyond growth and profits, market and non-financial performance indicators (e.g., social performance, non-pecuniary benefits, and survival) need attention.

6.1. Generalizability of business group research across countries Because business groups are found in many countries and can operate across country borders, it is important to consider factors that might impede the generalizability of business group research across countries. First, factor markets and institutions are multidimensional and vary across countries. For example, China and India— the two largest emerging economies—vary in important ways. Relative to China, India has more developed risk capital markets and its government has done more for local private enterprise. Yet, China’s government is more innovative and has done more for multinationals (Khanna, 2009; Ricart et al., 2004). In light of such differences, even among countries at similar stages of development, measuring factor market and institutional differences may be important when comparing business groups across countries. For instance, Peng and Jiang (2010) argue that stronger legal and regulatory institutions protect minority investors from expropriation and, in turn, find that such institutions reduce the negative effects of family CEOs and pyramidal ownership on affiliate stock returns. Second, country culture may have effects beyond those of market imperfections. In fact, research suggests that country culture helps explain factor markets, institutions, and ownership across countries (Chakrabarty, 2009; Fligstein, 1996; Holmes, Miller, Hitt, & Salmador, 2013; Mehrotra, Morck, Shim, & Wiwattanakantang, 2011). Often, there also is significant within-country cultural variation. In turn, country cultural differences also may limit generalizability. Third, and similarly, business groups differ systematically across countries. For example, Indian business groups rely more on ownership to control affiliates, Taiwanese groups rely more on intragroup trade, resource sharing, and informal control (Yiu et al., 2007), and affiliate IPOs are more common in North- than SubSaharan Africa (Hearn, 2015). Authority in Korean chaebol also is more hierarchical than in many Japanese keiretsu (Kim et al., 2010). Thus, generalizability hinges partly on whether findings are due to group- or country-level variables. 6.2. Endogeneity in business group research As the above discussion suggests, culture, factor markets, institutions, business groups, and industry conditions may be endogenous, creating confounds. For example, shocks lead to regulatory (Schneider, 2010), competition, demand, and factor market (Kim, 2010) changes, making it difficult to pinpoint why and how they affect business groups. Similarly, ownership, industry, and country can be confounding explanations for strategic and performance differences across business groups. State ownership is common in energy and utilities and in China, for

example, and family ownership is common in consumer and industrial products and in Korea (Kim, 2010; Lee & Kang, 2010). Families also may use pyramids to control large business groups, meaning that group scale and scope can be endogenous to ownership type. Thus, teasing apart different variables’ effects can be difficult. Similarly, there are confounding reasons for internationalization decisions in business groups. Belderbos et al. (2011), for instance, find that Japanese firms in different business groups often follow one another into particular geographic regions. Thus, affiliate internationalization may depend not only on intragroup learning and trade, but also on isomorphism and the availability of market opportunities. Relatedly, there are several sources of endogeneity specific to business groups. For example, conditions that motivate product and international diversification may explain strategic actions and firm performance, and firms engage in diversification and select strategic actions to affect performance (Brouthers, 2002; Martin, 2013; Shaver, 1998). However, affiliate strategy and performance also may be endogenous to conditions at the business group level. Affiliate internationalization and performance, for instance, can be endogenous to decisions to establish affiliates, particularly when they are young. Possible endogeneity highlights the concerns about generalizability. In response, scholars should consider two-stage regressions, instruments, subgroups, propensity score matching, and carefullychosen controls (Martin, 2013; Semadeni, Withers, & Certo, 2014). Fuzzy set approaches that explore configurations of high-performing business groups and multi-level methods that account for embeddedness in groups, industries, and countries also are important. 6.3. Performance measurement in business groups Finally, affiliate and business group performance often is not straightforward. First, defining business group boundaries can be difficult. Each affiliate does not maintain ties in equal measure with every other affiliate (Khanna & Rivkin, 2006). Moreover, especially in Japan, firms can have ties to more than one business group (Gerlach, 1992). Of course, misidentifying business group boundaries leads to errors in measurement and analysis. Studying the performance of internationalized business groups may be especially problematic, as globally dispersed affiliates may be difficult to track and may not report financial information. Second, affiliates’ purposes vary, perhaps masking the meaning of affiliate performance. Some focus on growth or profits, others exist to support fellow affiliates, and core firms may only coordinate. For example, Bamiatzi, Cavusgil, Jabbour, and Sinkovics (2014) argue that larger affiliates subsidize smaller ones and, in turn, find that smaller affiliates are more likely to grow during

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industry decline. Owners also may tunnel profits to affiliates that do not publish financial information, where their cash flow rights are greater, or that have more power. Thus, growth and financial performance vary among affiliates in the same group (Khanna & Rivkin, 2001; Kim, Hoskisson, & Wan, 2004b). Thus, dummies that separate affiliates from standalone firms can enable inexact inferences about the performance effects of business group membership. Tracing intragroup transactions, though challenging, can address some of these concerns. Third, beyond growth and profits, market and non-financial performance indicators need attention. Few of the sampled studies analyze market performance. Similarly, few include social performance, despite its importance, especially in family- or state-owned business groups. Likewise, financial metrics may be less meaningful to families that value non-pecuniary benefits. Lastly, variables that affect financial performance versus survival may differ: Colpan and Hikino (2010) report that 10 of the 25 top-performing business groups in 1987 were still on that list in 2007, but only two had dissolved. Thus, business groups may have survival advantages, but performance appears more volatile. Few studies examine business group survival, however. 7. Conclusion Further understanding of business groups is critical and timely. By reviewing unresolved theoretical, empirical, and methodological concerns in international strategy research on business groups and presenting a future research agenda, we hope to stimulate further work in this area. References Aguilera, R. V., & Crespi-Cladera, R. (2016). Global corporate governance: On the relevance of firms’ ownership structure. Journal of World Business, 51(1), 50–57. Ahmadjian, C. L., & Lincoln, J. R. (2001). Keiretsu, governance, and learning: Case studies in change from the Japanese automotive industry. Organization Science, 12(6), 683–701. Ahmadjian, C. L., & Robbins, G. E. (2005). A clash of capitalisms: Foreign shareholders and corporate restructuring in 1990 Japan. American Sociological Review, 70(3), 451–471. Alcantara, L. L., & Mitsuhashi, H. (2012). Make-or-break decisions in choosing foreign direct investment locations. Journal of International Management, 18(4), 335–351. Anderson, J., Sutherland, D., & Severe, S. (2015). An event study of home and host country patent generation in Chinese MNEs undertaking strategic asset acquisitions in developed markets. International Business Review, 24(5), 758– 771. Atanasov, V., Black, B., Ciccotello, C., & Gyoshev, S. (2010). How does law affect finance? An examination of equity tunneling in Bulgaria. Journal of Financial Economics, 96(1), 155–173. Bae, K. H., Kang, J. K., & Kim, J. M. (2002). Tunneling or value added? Evidence from mergers by Korean business groups. Journal of Finance, 57(6), 2695–2740. Baek, J. S., Kang, J. K., & Park, K. S. (2004). Corporate governance and firm value: Evidence from the Korean financial crisis. Journal of Financial Economics, 71(2), 265–313. Baek, J. S., Kang, J. K., & Lee, I. (2006). Business groups and tunneling: Evidence from private securities offerings by Korean chaebols. Journal of Finance, 61(5), 2415– 2449. Baker, T., Gedajlovic, E., & Lubatkin, M. (2005). A framework for comparing entrepreneurship processes across nations. Journal of International Business Studies, 36(5), 492–504. 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(1), 195–211. Banerji, K., & Sambharya, R. B. (1996). Vertical keiretsu and international market entry: The case of the Japanese automobile ancillary industry. Journal of International Business Studies, 27(1), 89–113. Belderbos, R. A., & Heijltjes, M. L. G. (2005). The determinants of expatriate staffing by Japanese multinationals in Asia: Control: learning and vertical business groups. Journal of International Business Studies, 36, 341–354. Belderbos, R., van Olffen, W., & Zou, J. L. (2011). Generic and specific social learning mechanisms in foreign entry location choice. Strategic Management Journal, 32 (12), 1309–1330. Belenzon, S., & Berkovitz, T. (2010). Innovation in business groups. Management Science, 56(3), 519–535.

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