The liability of closeness: Business relatedness and foreign subsidiary performance

Jianyun Tang and W. Glenn Rowe

Journal of World Business, 2012, vol. 47, issue 2, 288-296

Abstract: It is widely accepted that business relatedness, defined as the extent to which a foreign subsidiary is related to its parent's core business, has a positive effect on subsidiary performance. With a sample of 165 Japanese subsidiaries located in China, however, we found that modestly related subsidiaries, on average, outperformed both unrelated and closely related subsidiaries, and that closely related subsidiaries performed poorly especially when the parent had a heavy majority ownership in the subsidiary and the subsidiary was at its early stage of operating in the host market. Our results indicate that being too closely related to the parent could be potentially detrimental, suggesting a liability of closeness.

Keywords: Liability of closeness; Business relatedness; Foreign subsidiary performance; China; Japan foreign direct investment (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (14)

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DOI: 10.1016/j.jwb.2011.04.016

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