Centralization of intragroup equity ties and performance of business group affiliates

Ishtiaq P. Mahmood, Hongjin Zhu, Akbar Zaheer

Research output: Contribution to journalArticlepeer-review

37 Scopus citations


Research summary: Although prior research has suggested that equity ties are important for business groups, less attention has been paid to the specific mechanisms through which equity ties create value. We develop a framework that specifies how centralization of intragroup equity ties affects the performance of group affiliates. We use the exogenous shock of the 2008 financial crisis and a difference-in-differences analysis of 51,730 observations of business group affiliates in Taiwan to show that centralization of equity ties enhances affiliate performance, but such effects weaken when the environment becomes turbulent. Moreover, we find that listed affiliates obtain fewer benefits from centralization than unlisted affiliates. Overall, our study deepens scholarly understanding of not only how groups create value, but also how value is differentially appropriated among affiliates. Managerial summary: Our research speaks directly to owner-managers of business groups with respect to creating an optimal equity network structure that binds the affiliated firms of the group. Our findings suggest to managers that the overall structure of equity ties in a business group has major implications for the performance of the affiliate firms of the group, and the network structure within the group should be designed deliberately and thoughtfully on an on-going basis. In particular, control through centralized equity ties is performance-enhancing in normal periods, but such control may be counterproductive as turbulence increases in business environments, or as the number of listed group firms increases. Hence, owner-managers may consider optimizing the network structure by lowering the degree of centralized equity ties under such circumstances, or at a minimum, lowering centralized control.

Original languageEnglish (US)
Pages (from-to)1082-1100
Number of pages19
JournalStrategic Management Journal
Issue number5
StatePublished - May 1 2017

Bibliographical note

Publisher Copyright:
Copyright © 2016 John Wiley & Sons, Ltd.


  • affiliate performance
  • business group
  • equity ties
  • network centralization
  • turbulence


Dive into the research topics of 'Centralization of intragroup equity ties and performance of business group affiliates'. Together they form a unique fingerprint.

Cite this