FROM DIVERSIFICATION PREMIUM TO DIVERSIFICATION DISCOUNT DURING INSTITUTIONAL TRANSITIONS

Keonbeom Lee, Mike Peng and Keun Lee

MPRA Paper from University Library of Munich, Germany

Abstract: Recent development of an institution-based theory of corporate diversification has uncovered a diversification premium in emerging economies, suggesting that some business group-affiliated companies may outperform competing firms not affiliated with business groups. Is the diversification premium found in emerging economies likely to hold over time? This article extends the institution-based theory by arguing that as institutional transitions unfold, diversification premium in emerging economies is likely to dissipate over time and eventually become a diversification discount. We empirically draw on a data set from South Korea during 1984-96 involving 84 business groups and 751 group-affiliated and independent firms to substantiate this claim via a “chop shop” method. To the best of our knowledge, this represents the first study that documents the longitudinal process of how a diversification premium becomes a diversification discount during institutional transitions.

Keywords: business groups; diversification, Korean firms; institution (search for similar items in EconPapers)
JEL-codes: M20 (search for similar items in EconPapers)
Date: 2005
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Published in Journal of World Business 1.43(2005): pp. 40-63

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Journal Article: From diversification premium to diversification discount during institutional transitions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109778

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