Impact of state ownership and control mechanisms on the performance of group affiliated companies in China |
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| Authors: | Yuan Lu Jun Yao |
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| Institution: | (1) Department of Management, Chinese University of Hong Kong, Shatin, N. T., Hong Kong;(2) China Merchants Group Limited Post Doctoral Laboratory & Dalian Maritime University, Shenzhen, 518067, China |
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| Abstract: | This paper examines the moderating impact of state ownership and group control mechanisms on the relationship between diversification
and performance of companies affiliated with large business groups in China. We find that the state ownership has enhanced
the performance of group affiliated companies when they adopted higher degrees of diversification. We also find that cash
flow rights have a positive impact on the performance of companies with lower degrees of diversification while in general
group control rights have a negative impact on the performance. These results suggest that a group’s control mechanisms, derived
from pyramid ownership structures, enable the dominant owners to expropriate the value from minority shareholders or tunnel
corporate resources for their own interest.
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| Keywords: | Group affiliated companies State ownership Diversification Firm performance |
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