We examine the role of particularistic relationships (such as family and prior social ties) in business groups during institutional transition and test how particularistic ties between top leaders affect business group performance in Taiwan, where such ties have been central to the functioning of business groups. We propose that during market-oriented transition, family and prior social ties could improve group performance by providing informal norms that strengthen the intermediation within business groups and that family relationships could reduce strategic restructuring and generate performance benefits. Results of a longitudinal study over 24 years show that market transition enhanced the contribution of family and prior social relationships but not that of common-identity relationships, such as being from the same hometown, which do not involve prior direct personal contact. We also found that during transition, the positive contribution of family members would rise up to a threshold, after which additional family members tended to derail group performance, possibly due to informational disadvantages and a legitimacy discount in the eyes of foreign investors. The study helps to make sense of different predictions about the role of particularistic ties in business group performance and makes an initial attempt at revealing how social structure affects performance. Our findings have implications for research on the value of business groups in institutional transition, interorganizational relationships, and the contingencies of social relationships.

Using a comparative institutional perspective, we explore whether business groups’ roles in facilitating affiliate firms’ innovation varies by country and time period. We compare the innovativeness of firms affiliated with business groups to that of independent firms in two emerging economies: South Korea and Taiwan. On average, business group affiliates outperform independent firms in South Korea, but not in Taiwan, and in the early 1990s, but not in the late 1990s. The existence of alternative institutional infrastructures for innovation might explain these differences. Groups’ abilities to share technological knowledge and financial resources among affiliates enables them to create value by promoting innovation in emerging economies, but groups’ diversification might inhibit individual affiliates’ innovativeness.

Despite increased attention given to family firms in the theory of organization and management, the value of family governance in emerging markets is not clearly understood. We draw insights from agency and institutional economics perspectives to address the debate on whether family governance fills or abuses the void left by weaker market and legal institutions. We propose a dual focus on the pattern of family control and weak institutions to reconcile these opposed assessments. We analyze how various combinations of family control over ownership, strategy, and operations yield different benefits and costs for the operational performance of firms in the absence of strong market and legal institutions. The uneven development of market institutions across industries and the impact of independent directors reinforce the importance of separating different patterns of family control. We find support for our hypotheses when tested on a data set consisting of all publicly listed firms in Taiwan between 1996 and 2005. Our study contributes to a deeper understanding of family businesses in emerging markets, highlights the importance of weak institutions in shaping relative agency costs, and illuminates the differential effects of independent directors.

We examine how leadership transition affects firm performance in emerging economies. Building upon the social embeddedness and neo‐institutional perspectives, we argue for the importance of alignment between successor origin and social context for firm performance. We suggest that as a baseline outside successors enhance firm profitability because of the large‐scale and rapid changes in emerging markets. However, this outsider premium is reduced in firms embedded in family and business group relationships, where family and inside successors can better access network resources. But the outsider premium is amplified in firms embedded in a mature market‐based logic, such as high tech or foreign invested firms, because the perceived legitimacy of outsiders facilitates resource acquisition. Our arguments are supported through the analysis of Taiwanese listed firms between 1996 and 2005. Copyright © 2012 John Wiley & Sons, Ltd.

Using data on 290 business groups, this study examines how ties with rival political parties maintained by Taiwanese firms from 1998 through 2006 affected business strategies, specifically the unrelated diversification into new industries. Taiwan’s recent democratization and emerging economy provide an ideal setting for studying the economic impact of firms’ ties with rival political parties. By focusing on a firm’s entire portfolio of ties instead of strictly dyadic business–government ties, we offer a novel model that demonstrates how the interplay of various ties affects a firm’s strategy differently under different forms of government. Our analysis shows that under a united government, ties to the ruling party facilitate entries of business groups into unrelated industries, while ties to the opposition parties inhibit such moves. Portfolios of ties to both the ruling and opposition parties impose additional obstacles to market entry. Under a divided government, however, ties to the ruling party are conducive to market entry, and portfolios of ties to both the ruling party and the opposition party with legislative authority offer a further boost. Regardless of type of government, the effect of having a portfolio of political ties tends to be mitigated by a firm’s internal resources and capabilities: a firm with sufficient resources and market entry experience has a better chance of achieving its goals even when a dominant political party withholds its support. Our study highlights the tradeoffs that politically connected firms confront in emerging economies with underdeveloped political and market institutions.