مالکیت مدیریتی، تنوع و عملکرد شرکت: شواهد حاصل از بازار نوظهور

Numerous existing studies have explored the impact of corporate diversification on firm performance, whereas considerably less research has investigated the inter-relationships among managerial ownership, diversification, and firm performance. This paper develops several hypotheses based on the agency theory self-interest perspective and tests the relationships among managerial ownership, corporate diversification, and firm performance using a sample of 98 emerging market firms listed on the Taiwan Stock Exchange. The results show a U-shaped relationship between managerial ownership and corporate diversification, similar to that found in prior studies. However, the inflection point is 33.17%, which is lower than that found in previous studies. Moreover, in contrast to prior results, corporate diversification is found to be positively associated with short-term firm performance and bears no relationship with mid-term firm performance, while firms engaged in unrelated diversification outperform those engaged in related diversification. This paper concludes with theoretical implications and suggestions for future research.

Diversification is one significant method that firms use to maintain their competitiveness and enhance their profitability. Firms seek diversification strategy in order to achieve value creation through economies of scope, financial economies, or market power (Barney, 1991, Bettis, 1981, Montgomery, 1985 and Prahalad and Hamel, 1990). On the other hand, diversification can also increase costs due to difficulties associated with coordination, information asymmetry, and incentive misalignment between headquarters and divisional managers in multidivisional firms (Denis et al., 2002 and Harris et al., 1982). The relationship between diversification strategy and performance has been the focus of extensive research within the strategic management literature. Most previous work focusing on developed market firms (Amihud and Lev, 1981, Berger and Ofek, 1995, Denis et al., 1997, Denis et al., 2002 and Rumelt, 1974) and limited work focusing on emerging market firms (e.g., Delios, Zhou, & Xu, 2008) have offered evidence that diversification results in worse performance for the diversifying firms. These studies signify the importance of the diversification strategy on firm profitability. However, compared to more developed markets, comparatively immature industries and less-developed capital markets within emerging markets offer firms ample opportunities and benefits to engage in diversification (Chen and Ho, 2000, Chow et al., 1996, Delios et al., 2008b and Tam and Tan, 2007). As such, firms in countries with less-developed capital markets should have a greater incentive to diversify in order to gain proportionally greater benefits from internal capital markets (Shackman, 2007). Therefore, the special contexts in emerging markets may represent a different form of linkage between diversification and firm performance. The concentration of a firm's ownership structure and the identity of its owners influence a firm's corporate governance, strategies, and performance (Shleifer & Vishny, 1994). Firms in developed markets such as the US have widely dispersed ownership structures along with comparatively better corporate governance (i.e., strong investor protection mechanisms). This ownership structure illustrates the agency problem between managers and shareholders. Studies examining the managerial ownership-corporate diversification link assume that high managerial ownership promotes incentive alignment, which is therefore negatively associated with the level of corporate diversification (e.g., Chen and Ho, 2000, Delios et al., 2008b, Denis et al., 1997 and Goranova et al., 2007). Thus, existing studies based on firms in developed markets support a cross-sectional negative “linear” relationship between managerial ownership and diversification. However, the special contexts surrounding ownership structure and corporate governance in emerging markets may lead to a different relationship between managerial ownership and corporate diversification as compared to that found in developed markets. Unlike firms in developed markets, the ownership structure in emerging markets such as Taiwan is characterized by the dominance of one primary owner and widely dispersed individual investors (Claessens et al., 2000 and Yeh et al., 2001). The dominant owner, typically a founder or a founding family, holds a significant number of shares—enough to be the largest shareholder but usually much less than the majority holdings of a company—and controls the company. Family firms, owned and run by one family or by a small number of families (Stern, 1986), are prominent in emerging markets, including Asia (Claessens, Djankov, Fan, & Lang, 2002), and more specifically China (Delios, Wu, & Zhou, 2006), South Korea (Jung & Kwon, 2002), Malaysia (Tam & Tan, 2007), Indonesia (Lukviarman, 2004), and Taiwan (Claessens et al., 2000 and Yeh et al., 2001). These family owners usually participate in the management of the firm, directly or indirectly, and influence most managerial decisions. In other words, emerging market firms illustrate an exception to normative prescriptions regarding the separation of ownership and management and the professionalization of top management (Chen, 2001 and Peng et al., 2001). For example, Chinese family firms often select a CEO from family members or friends so as to maintain close operational control as well as existing connections with government officials and other key resource providers (Ahlstrom et al., 2004, Chen, 2001 and Lien et al., 2005). Claessens et al. (2000) examined nine East Asian countries and found a predominance of family control and family management. They also found that management in approximately 80% of Taiwanese listed firms is from the controlling family. Moreover, emerging markets generally suffer from a lack of shareholder and creditor protection and have poorly developed legal systems (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998). Inadequate or weak corporate governance allows owners-managers to utilize free cash flows without adequate controls. Therefore, the agency problem that exists in emerging markets is not between owners and managers, as in Anglo-Saxon countries, but between controlling shareholders and minority shareholders. The different contexts in ownership structure and corporate governance associated with emerging markets firms and their effects on the level of corporate diversification are likely to differ from what is common for US firms. This highlights the necessity of examining the relationship between managerial ownership and corporate diversification for emerging market firms. The existing literature on corporate diversification is based mainly on US data, which may only reflect US corporate behaviors and the US capital market environment. Very little is known about corporate governance (managerial ownership), corporate diversification, and firm performance outside the US, and even less for emerging markets (e.g., Delios, Zhou, et al., 2008). Emerging markets such as Taiwan provide “an excellent laboratory” to study the relationships between managerial ownership and corporate diversification and between corporate diversification and firm performance given the special contexts characterized by concentrated family-controlled ownership, widely held individual investors, limited investor protection, underdeveloped capital markets, and greater market potential. Further, previous studies have produced varied findings concerning the relationship between diversification strategy and performance (Berger and Ofek, 1995, Chen and Ho, 2000, Christensen and Montgomery, 1981, Delios and Beamish, 1999, Delios et al., 2008a, Khanna and Palepu, 2000 and Michel and Shaked, 1984). One explanation for these varied findings is based on the nature of the sample firms examined. First, as indicated above, the linkages between diversification strategies and other variables may differ for firms in developed markets and those in emerging markets. Second, because firms may increase their level of diversification in one year but decrease their level of diversification in the next year, any assessment of the impact of diversification on performance for a particular year must take these fluctuations into account. To the best of our knowledge, no studies have attempted to examine the relationship between corporate diversification and firm performance for emerging market firms that only increased or decreased the level of corporate diversification once over a certain period of time.2 Only by examining firms of this nature can we consistently assess the impact of diversification and performance. To contribute to the existing literature, the goals of this paper are to build up a databank similar to that of Compustat and to examine the relationships among managerial ownership, the level of diversification and the performance of Taiwanese firms listed on the Taiwan Stock Exchange (TSE) based on the self-interest perspective of agency theory. As such, this research contributes to the external validity of the existing findings on diversification. In addition, the research findings are also helpful for emerging market firms engaging in diversification activities. The remainder of this paper is organized as follows. The second section reviews the theoretical background and existing empirical literature as a basis for the two research hypotheses. The third section outlines the data source, the variable definitions and the research methodology. The fourth section discusses and interprets the empirical results, while the final section presents conclusions and provides suggestions for future research.

This study selects emerging market firms (i.e., 98 Taiwanese listed firms) that either increased or decreased their level of corporate diversification only once between 1996 and 2001 as the sample to explore the relationships among managerial ownership, levels of diversification, and firm performance. We find that managers of Taiwanese firms have a higher level of managerial ownership than those working for either US firms (Denis et al., 1997) or Singaporean firms (Chen & Ho, 2000). This signifies the concentrated ownership and family control common in emerging market firms as compared to the dispersed ownership in developed markets, and may illustrate the agency problem that exists between minority shareholders and owner-managers. Moreover, Taiwanese firms prefer to pursue an unrelated diversification strategy. On the contrary, firms in developed markets such as the US seem not to have any preference for related or unrelated diversification (e.g., the figures for related and unrelated diversification are almost equal in Chang & Wang, 2007). This also signifies different diversification behaviors for firms in developed markets compared to those in emerging markets. Theoretically, the empirical results support the self-interest perspective of owner-managers in terms of agency theory, and point to a U-shaped relationship between managerial ownership and the level of diversification. Due to the ownership structure of predominately family-controlled owners and widely dispersed individual investors, the inflection point exists at 33.17% of ownership, which is lower than the figure of 50% reported by Denis et al. (1997). This suggests that beyond the inflection point, owner-managers of Taiwanese firms seek private profits and might be inclined to diversify on a larger scale to reap additional personal and family interests. In other words, owner-managers tend to derive private benefits from firms since they do not need to share the high costs associated with diversification due to not holding a majority of the shares. This also suggests that a higher ownership stake and family control both augment the incentives for owner-managers to reap greater private benefits by using the diversification strategy. These results have important implications for agency theory and its applicability in different national settings. Researchers have examined the impact of widely dispersed ownership (Denis et al., 1997) and ownership by member firms of a business group (Lee & O’Neill, 2003), while we have extended this to incorporate the impact of family ownership. We support the external validity of the relationship between diversification and levels of concentration from widely dispersed owners to family members. We also highlight the difference between widely dispersed ownership and family ownership—the inflection point occurs earlier for the latter group.10 The results also provide several implications for investors in emerging markets. These investors should pay attention to changes in the level of managerial ownership. An increase in managerial ownership below the critical level of control could represent the interest alignment of owner-managers with minority shareholders. However, when the level of managerial ownership exceeds the critical level of control, owner-managers can control the firm and reap greater private and family benefits without the associated high costs of the relevant diversification strategy. Thus, they have the incentive to pursue diversification or unrelated diversification strategies that may not be in the best interest of minority shareholders. In other words, a higher level of managerial ownership that exceeds the critical level of control may represent greater agency problems and agency costs between the controlling shareholder and minority shareholders. Minority shareholders should pay greater attention to the diversification strategies employed by firms that have low levels of managerial ownership that exceed the critical level of control. Moreover, the challenge is to identify the level of ownership that causes concern for each firm. In emerging markets, the inflection point is earlier than in developed markets due to institutional voids. In the current study, we find that diversification is a good strategy to enhance firm performance in the short run. Diversification can potentially assist a business to obtain access to skills, resources, assets, or competencies that cannot be purchased by nondiversifiers in a competitive market or replaced by some other asset that can be purchased competitively. Further, we find that Taiwanese firms are inclined to opt for unrelated diversification as compared to firms in developed markets, which reflects a different diversification strategy. Stimpert and Duhaime (1997) argue that firms operating in industries characterized by low profitability and few growth opportunities tend to expand by entering new businesses. This helps to clarify why many of our sample firms engage in unrelated diversification—it is the foremost means of escaping the low profitability of the firm's current industry. Delios and Beamish (1999) also indicate that the profitability of the principal industry in which a firm operates is negatively related to the extent of its diversification. Hence, diversification serves a means of escaping the poor profitability associated with a firm's industry (Christensen & Montgomery, 1981). However, we also find diminishing performance over time for diversifying firms. Based on agency theory, owner-managers may pursue unrelated diversification to satisfy personal objectives, especially for firms in mature industries that possess available earnings for investment purposes (Jensen, 1986, Mueller, 1972 and Shleifer and Vishny, 1989). Thus, agency theory suggests that within mature industries, we should expect to observe some firms systematically overinvesting in diversification. The diminishing performance for diversifying firms might be attributed to the inadequate evaluation of new projects; in turn, poor performance due to rising managerial costs and poor integration capabilities may soon surface. In other words, diversifying firms may suffer over time if they lack functional integration systems or neglect to exercise their integrative capabilities (such as understandability, communication, and the retention of key employees) to manage unrelated businesses. Therefore, to enhance firm performance, firms cannot rely on diversification per se but on on-going integrating of the new businesses to existing ones. One limitation of our research is that we limit our study to Taiwan, which may not be representative of large, strategically important emerging economies. However, based on the self-interest perspective of agency theory and the particular context (family-controlled ownership, poor corporate governance, an underdeveloped capital market and immature industries), we derive and test our hypotheses using Taiwan-based firms as our sample. We believe that the findings may be applicable to other emerging markets, although the inflection point may differ for countries associated with different stages of corporate governance. Moreover, even data collection specifically performed to accurately reflect the levels of corporate diversification might still have underestimated the levels of diversification: based on “Consolidated Financial Statements” (i.e., Taiwan FASB No. 5), firms are only required to provide consolidated financial statements if they hold at least 50% of the equity shares of their subsidiaries. Due to a lack of data availability, we could not acquire data on subsidiaries when the equity shares totaled less than 50%, and thus might have underestimated the level of diversification for some firms. In this paper, we explore the extent to which managerial ownership, past performance, R&D intensity, debt ratio, industry effect, firm size, and firm age affect the level of corporate diversification. Similarly, we include several relevant variables such as past performance, R&D intensity, debt ratio, industry effect, firm size, and economic growth rate to examine the relationship between the levels of diversification and firm performance. However, this study does not include variables to reflect the behavior preference of decision-makers. We suggest that future research can incorporate additional behavior-related variables into our model to more fully clarify the factors affecting diversification and firm performance.