Heterogeneity in business groups and the corporate diversification–firm performance relationship

Abstract

This article examines how heterogeneous features among business groups influence the corporate diversification–firm performance relationship. The study classifies heterogeneity along three dimensions: group size, group diversity, and share ownership. Using a sample of firms from India, the study finds some evidence that for firms affiliated to larger business groups, corporate diversification enhances firm performance. However, business group diversity does not influence the diversification–performance relationship. The impact of diversification on firm performance differs substantially owing to the heterogeneity in share ownership. The paper documents an interesting interplay between business group and ownership structure.