Academic journal article E+M Ekonomie a Management

Does Concentration of Ownership and Family Control Affect Specialisation/diversification Business Strategies?

Academic journal article E+M Ekonomie a Management

Does Concentration of Ownership and Family Control Affect Specialisation/diversification Business Strategies?

Article excerpt

Introduction

Interest in diversification has largely focused on three topics: the way in which business diversification can be measured [19], [35], [48], [60], [69], the relationship between diversification and business results and the factors that determine diversification [4], [6], [11], [12], [17], [26], [27], [36], [41], [50], [58], [70], [71], [74], [72]. However, less attention has been paid to the impact of ownership structure (concentration and main shareholder) on degree of business diversification [13], [14], [16], [19], [30], [31], [63], [76]. Although some authors mention, in theoretical terms, the importance of concentration of ownership [2], [15], [30], [44] and the type of shareholder/s that effectively control the firm [19], [54] [55], [71], [75], in an analysis of business diversification, very few studies have analyzed empirically said impact, with exceptions focusing on the US, European and Asian corporations [3], [11], [15], [19], [25], [27], [29], [40], [58], [50], [74]. The results found in the literature regarding corporate diversification strategy are not conclusive, due to differences in the concept of diversification and measurements used for its study [5], [49].

This study shares the objective of learning more about corporate diversification strategies in relation to type of controlling shareholder or group, more specifically we study impact of ownership structure on degree and type of business diversification. The study differs in several ways, however, from previous research. First, we use data that is largely taken from the information supplied by firms to the Spanish Stock Market Commission (Comision Nacional del Mercado de Valores). This should guarantee its reliability. Secondly, unlike most of the previous studies, in which the firm itself is the unit of analysis, our diversification study uses the pyramidal group of independent firms controlled by the same parent company; as most of the determinant factors of diversification are similar to the factors that explain the existence of pyramidal groups of firms, we believe that it is more pertinent to study type and degree of business diversification in relation to the entire group rather than the parent company (Bertrand, Johnson, Samphantarak and Schoar [7], Bru and Crespi [9], and Hernandez and Galve [33]). Thirdly, we present comparisons of the growth strategies (diversification versus specialisation) adopted by business groups controlled by a family, by foreign capital, by a bank or several shareholders, none of which have effective control of the firm.

The paper is organized as follows: section 1 refers to the theoretical development of diversification covering the analysis of diversification from a pyramidal group perspective and the influence of ownership structure. Section 2 deals with research method, including the sample, the variables measurement and the methodology. Finally, section 3 presents the results and conclusions.

1. Theoretical Development of Diversification: Group Pyramidal and Ownership Structure

1.1 Analysis of Diversification from a Pyramidal Group Perspective

Diversification implies a firm moving into a number of markets (sectors, industries or segment) it was not previously engaged in. For several decades, product diversification has been a highly popular strategy among large and growing industrial firms in the industrialized world. Firm uses three main strategies to diversify across product segment like vertical integration, related diversification and unrelated diversification.

Most of the studies on diversification have been focused on aspects such as the "extent" of diversification (i.e. less or more diversification), the "directions" (i.e. related or unrelated), and the "mode" (i.e. diversification via internal expansion or diversification via mergers and acquisitions of firms). Some empirical studies obtain that diversifying into related product-markets produces higher returns than diversifying into unrelated product-markets and less diversified firms performs better than highly diversified firms [64]. …

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