CONTROL OF CORRUPTION,
CORPORATE DIVERSIFICATION STRATEGIES,
AND FIRM PERFORMANCE
Ying Jia
University of Groningen
Faculty of Economics
Master of International Economics and Business
Master thesis Supervisor: Dr. Desislava Dikova
Student: Ying Jia
Student nr. 1368818
Jourbertstraat 25-2
1091 XN Amsterdam
Tel. 0614529218
ABSTRACT
Using firm-level data on Multinational Enterprises in UK and Italy, this paper provides a theoretical and methodological approach to explore the influence of control of corruption on the relationships between firm performance and corporate strategies. This empirical study suggests that certain diversification strategies are more likely to be associated with superior performance in certain environments, in terms of control of corruption. Results show: firm performance is negatively related to product diversification, but positively related to international diversification, in home country with good control of corruption.
CONTENTS 1. INTRODUCTION……….3 2. THEORETICAL BACKGROUND ………..5 2.1 Control of Corruption………..5 2.1. Corporate Strategies………6 3.HYPHOTHSES………...9 3.1. Poduct Divesification………..9 3.2. International Diversification………..12 4.METHOD………...16 3.1. Data Sources……….16 3.2. Sample………..16 3.3. Variables………...17 3.4. Econometric Model………...18 5. RESULTS……… 20 5.1. Descriptive Statistics………..21
5.2. Regression Analysis Results………..22
5. DISCUSSION………...23
REFERENCES………...26
APPENDIX A: Tables………. 29
1. INTRODUCTION
International diversification and product diversification, as the most common corporate strategies, have generated a flurry of empirical studies (Tallman and Li, 1996). Previous research has produced mixed arguments and results. It provides several theoretical explanations of corporate strategies- performance relationship. However, the relationship between MNEs’ diversified activities and corporate performance has not reached a consensus. It could be that other factors, in addition to firm’s corporate strategies, dominantly influence MNEs’ performance. Among these factors is international environment. Environment is typically perceived as the sum of (i) factors of production, (ii) regulatory institutions and (iii) cultural institutions, which influence the behaviour of firms across borders. Most researchers examining the relationship between corporate diversification strategies and performance have not considered the influence of environment on firms’ strategies. A single study by Wan and Hoskisson (2003) examined the effect of environmental munificence on firm performance.Because local environmental specificities are not similar, various geographic locations may have divergent effects on firm performance. Together with factors of production, institutions shape the environments and thereby differentiate geographical locations. As Wan and Hoskisson also note, Institutions need more detailed investigation. Therefore, the consideration of institutional characteristics is critically important for studies on multinationals’ performance.
‘Institutions are the rules of the game of a society or more formally are the humanly devised constraints that structure human interaction… They are composed of formal rules (statute law, common law, regulations), informal constraints (conventions, norms of behaviour, and self imposed codes of conduct), and the enforcement characteristics of both’ (North, 1993). The main determinant of both formation and enforcement of these rules is corruption. Indeed, corruption is considered as one of the greatest obstacles to international business, according to a World Bank survey (Kaufmann, 2004).
strategies depends on the level of corruption in their environment. By bringing the corruption to the foreground, this study enriches the corporate diversification literature.
2. THEORETICAL BACKGROUND 2.1 Control of Corruption
Corruption, as one of the key indicators for countries institutional environments, hampers democratic processes, good governance, sustainable development and fair business practices. The empirical research conducted by Kaufmann (2004) shows the views of the firm about the main constraints they face. The following simple and telling question was included: “From the following list (of 15 obstacles), please select the five most problematic
factors for doing business in your country.” When organizing the fifteen listed constraints,
the governance cluster, comprising corruption and bureaucracy, emerges as the most binding constraint: it was named as one of the top three constraints by firms in 79 out of 104 sample countries. Although the clusters of finance, labour markets/human capital, tax regime and infrastructure also pose significant obstacles in many countries, they lag far behind the governance cluster. As the recent joint report by the Africa Commission (2005) explicitly stated “Good governance is the key…unless there are improvements in capacity, accountability, and reducing corruption…other reforms will have only limited impact.” Clearly, national governance and corruption have been seen as a challenge in most of countries. And now they are given higher priority in development circles and by the corporate sector, including multinationals.
(iv) the public sector ethics index, measuring the variables related to public integrity, bribery and favouritism in the public sector; (v) the legal effectives integrity index focusing on the effectiveness and integrity of the legal and judicial system; (vi) the corporate governance index, based on standard questions regarding corporate governance, such as the relationship between board and management, etc.
Seen in this light, control of corruption plays an important role in measuring institutional environments. Corruption could influence rules of the games from both illegal and legal forms. All these provide the motivation for this study to focus on control of corruption in the field of new institutional economics and firms’ corporate strategies.
2.2 Corporate Strategies
Corporate strategies can be categorized as product diversification and international diversification. Product diversification refers to a firm’s diversification into more than one product market. From the “resource view” by Montgomery and Wernerfelt (1988), firms seek to extend the use of fixed resources, such as managerial skill, as long as such use is profitable. They argue that a firm might diversify outside its core market into less profitable markets if it has exhausted profitable opportunities in its core market but the firm has spare resources. Interestingly, this view predicts a negative relationship between diversification and profitability of the firm’s investment opportunities, because the firm has moved into a less profitable market. In contrast to such a theory of inefficient diversification, Mitchell Berlin (1999) argues that the firm’s diversifying investments don’t reduce firm profits. From a tax benefits point of view, a temporarily unprofitable division’s losses can be set off against the total profits of the firm to reduce the firm’s tax bill. Empirical evidence shows that such tax benefits can help explaining a firm’s gain from diversification, but the potential gains from being able to offset profits are relatively small. However, Hubbard and Palia (1998) have provided some evidence that during the diversification wave of the 1960s, investors recognized the benefits of internal capital markets.
benefit to international expansion is the exploitation of market imperfections’, writes Rugaman (1979). Following this logic, a variety of authors have tested a linear and positive international diversification-performance relationship (Delios & Beamish 1999; Doukas & Travlos, 1988), no relationship (Brewer 1981), or a negative relationship (Geringer, Tallman, & Olsen, 2000). More recently, a few studies have begun to address costs involved in international diversification and found a curvilinear relationship (Hitt et al., 1997; Lu & Beamish, 2001), or an S relationship (Lu & Beamish, 2004). Many internationally diversified firms also operate in multiple and disparate product markets (Hitt et al., 1997). Hitt (1997) concluded that product diversification positively moderates the curvilinear relationship between international diversification and firm performance. However, Geringer, Tallman and Olsen (2000) stated no significant interaction effect of international and product diversification with firm performance. Mixed conclusions have been drawn by all these studies. This could be the case because environmental effects were ignored by a predominant part of studies examining the relationship between product and international diversification and MNE performance. Not accounting for the effect of international or home-country environment, or treating it as a constant, limits the explanatory power of the models in past studies.
magnitude of its negative effect on business across borders, brings about the burning need to examine the sole effects of corruption on the contradictory relationship between corporate diversification strategies and subsequent performance.Thus, the approach of this study is to isolate one environmental effect, which is corruption, by ignoring the effects of advanced factors of production. Another justification for that approach is the choice of MNEs: the MNEs examined in this paper originate from countries with relatively abundant supply of advanced factors of production, Italy and UK. Yet, regardless of relatively comparative advantages in factors of production, Italy and UK are evaluated very differently in terms of corruption. This will further facilitate the observation of possible moderating effects of corruption on the relationship between diversification and performance.
3. HYPOTHESES
This empirical study suggests that certain diversification strategies are more likely to be associated with superior performance in certain environments, in terms of control of corruption. To simplify this empirical study, two groups of MNEs are defined based on the level of control of corruption in their environment. Following this logic, hypotheses are formed separately for firms in countries with good control of corruption and poor control of corruption regarding two key corporate strategies: product diversification and international diversification.
3.1 Product Diversification
Product diversification is one of the main corporate strategies. In this study, different conclusions about the relationship between product diversification and firm performance are expected, depending on the different levels of control of corruption.
Good governance and controlling corruption are fundamental for growth and development (Kaufmann, 2004). Institutional environments with good control of corruption provide firms not only formal and informal rules to guide individual’s behavior and specific guidelines designed by trading partners to mediate particular economic relationships, but also ensure the transparency on the fomulation of regulations and polices, and the implementation on the spot. Clagus (1997) states that a healthy supply of institutions enables firms to enjoy specialization benefits facilitated by the availability of market transaction mechanisms, and control of corruption plays an important role for a healthy supply of institutions.
business partners. Adequate intellectual property enforcement enables firms to intensively innovate and improve in specialized product markets without concerning losing the fruits of their unique skills. Appropriate antitrust enforcement ensures a high degree of market participation (Bergara et al., 1998; Knack & Keefer, 1997). After all, good control of corruption is the key to ensure no private agent plays a key role in shaping regulations and policies through illegal corruptions. Moreover, it also could limit the particular influence of powerful firms on politicians and policy making through legal but corrupt activities.
An institutional environment with good control of corruption promotes relatively fair and intense competition. However, when the competition is intense, firms are compelled to devote significant amounts of attention to increasing product competitiveness. According to the theory of the firm, firms would find it particularly beneficial to pursue low levels of product diversification to stay focused and attain more specialized product-market expertise. Also the adequate intellectual property right and contract enforcement mechanisms enable firms to develop core competences by innovation with efficient partners and have a better position in the market. As indicated by Wan and Hoskisson (2003), the sources of competitive advantage in these competitive environments would rest on continuing improvements in the value chain and specialized capabilities in certain activities. Thus, high product diversification, which requires managers to monitor a wide variety of businesses and that may deplete a manager’s information-processing capacities, may be a relatively undesirable strategy (Hill & Hoskisson, 1987). Low product diversification, in contrast, which places emphasis on developing unique, critical capabilities, may be a more favourable strategy.
Hypothesis 1. In home institutional environments with good control of corruption, MNEs’ performance is negatively related to product diversification.
In enviroments with poor control of corruption, firms would pursue strategic actions to subsitute for the lack of control of corruption. Product diversification is one of the well-know strategic actions in this sense.
Governments in the more corrupted environments usually play a more active role in the economy. Governments could abuse their hierachical authority to enable opportunistic behaviours (Williamson, 1975). Therefore, firms would have more motivation to build up close ties with government, via various types of bribery to influence politicians and policy making. On the one hand, close ties with governments could allow firms to enjoy idiosyncratic state favors. As indicated by Hillman and Hitt (1999), firms can extend their competitive advantages mainly by erecting institutional barriers to gain more business opportunities in more sectors through lobbying. Their unique, flexible capabilities in establishing government relationships are often not restricted to any specific product markets, which allow them to reproduce themselves in many different businesses (Whitley, Henderson, Czaban, Lengyel, 1996). On the other hand, firms’ scope and influcence in many sectors of the economoy are likely to foster close ties as well. Diversification in different product markets would create more opportunities for firms to deal with the governments, thus tighen the existing relationship with the goverments.
partners in the market because of enhanced market reputation in term of the size and financial capability.
Moreover, firms would find it costly to concentrate on specializing in a few key products. On the one hand, the low level of intellectual property enforcement could not sufficiently protect them from losing their unique skills. High product diversification may compensate for inadequate intellectual property enforcement by allocating concentration among different product markets, as a means of insuring against loss of intellectual property. On the other hand, firms benefit more from building up close ties with government, than from investing in developing specialized products. From a profit maximization point of view, firms would be less motivated to innovate in a few key products.
Overall, firms would find it more efficient to pursue high levels of product diversification due to the improper formation and enforcement of the rules. Moreover, a high level of product diversification enables firms to exploit their special relationship with governments. For the reasons set out above, we expect firm performance to be positively related to product diversification.
Hypothesis 2. In home country institutional environment with poor control of corruption, MNEs’ performance is positively related to product diversification.
3.2 International Diversification
Good governance with good control of corruption ensures firms could compete in a fair environment without any private agents shaping the regulations based on own interests. Thus, firms would find it particularly beneficial to pursue low levels of product diversification to stay focused and attain more specialized product-market expertise. Increased investments in R&D, advanced products development would be necessary and beneficial. However, firms not only need to offer customers products with more advanced features but also need to price competitively to gain market share in such fiercely competitive environments. The best way to accomplish this is by spreading the R&D expenses over larger output. Since any domestic market has its point of saturation, international diversification would be a favourable solution for firms. By establishing more international subsidiaries, firms can achieve not only placement of greater output, but could also outsource low-skill labour activities to subsidiaries established in countries with cheaper factors of production. To this extent, economies of scale and scope could be achieved by sharing core competencies across the different operations.
Furthermore, firms from the environments with good control of corruption can stay competitive in the international markets. This is because of the following reasons. Firstly, firms could get the necessary cooperation from their non-discriminating governments in transferring skills acquired at home to host countries. This implies firms can enjoy the good environment at home by developing their core competencies and managing to transfer those to the international markets. Secondly, intense rivalry and sophisticated demand at home sharpen firms’ competitive edge. Inefficient firms at home are more likely to be acquired by efficient ones through an active external market (Walsh & Sward, 1990).
Hypothesis 3. In home institutional environments with good control of corruption, MNEs’ performance is positively related to international diversification.
In home country environments with poor control of corruption, firms may pursue high international diversification as well. However, this study expects international diversification by these firms to have a different influence on firm performance from the firms from environments with good control of corruption.
Government in home country environments with poor control of corruption usually plays a more active role in the economy and provides more opportunities for firms to use all types of bribery to influence politicians and policy. Firms could extend their competitive advantages mainly by lobbying to build up close ties with government. Therefore, firms would find it more beneficial to invest in having close ties with the governments than in R& D for more competitive products. When firms diversify internationally to compete in another foreign markets with their less specialized products, such firms would be less competitive compared to rivals with which they compete on international markets; these rivals have relatively more specialized products with advanced features.
Moreover, the redeployments flexibility of firms’ competitive advantages determines if they can optimally transfer their skills and capabilities across the countries (Anand & Singh, 1997). It is costly for firms to get necessary cooperation for this transfer from corrupted government. Thus, even if firms spend large amounts on R& D for more advanced products; firms’ core competencies could not be shared across multinational operations easily. Therefore, economies of scale and scope cannot be achieved. To this extent, firms could not benefit from international diversification.
government, firms may loose their competitiveness when they operate internationally. Firms might be not competitive enough in the global market, even when they are successful in their home countries.
In short, home country environments with poor control of corruption create barriers for international diversified firms to transfer valuable competences from one country to another, and may allow the firms to compete through unfair regulations or appropriating policies but not through competitive products, so that firms may not be competitive in the global market. Therefore, firms cannot benefit from international diversification.
4. METHOD
To properly test the hypotheses explained above, it is important to conduct the empirical test with the appropriate methodology. This section will explain the data sources, how to construct a sample of firms, the measures for variables for this study.
4.1 Data Sources
Secondary data from the database AMADEUS and World Bank governance in year 2006 were used in the collection of data for the empirical analysis of the hypotheses. The AMADEUS database provides accessible standard reports from which firm level data were collected and World Bank governance database provides accessible reports from which country level data were collected.
4.2 Sample
To better comprehend how the variation of home country institutional environments influences the relationship between firm performance and corporate strategies, this study tests the hypotheses on a two-country sample.
institutional economics literature. Furthermore, UK and Italy is a relatively convenient choice in terms of available information for this empirical study.
Firms covered in AMADEUS were used for the initial sample. The initial firm samples were the largest 200 firms ranked by sales in UK and Italy. According to the purpose of this empirical study, I chose the firms, which are diversified in more than one product market and more than one foreign market. The total number of firms in the final base sample was 144 (Industrial 64, transportation 23, banking 29 and utility 28). To test the hypotheses, two groups are categorized based on control of corruption measured by the indices presented in the table 2 and 3. Firms in UK (Industrial 19, transportation 12, banking 23 and utility 17) are defined as the group with good control of corruption and Firms in Italy (Industrial 39, transportation 11, banking 12 and utility 11) as the group with poor control of corruption.
4.3 Variables
This study includes three standard types of variables. Each variable is defined as below:
Dependent variable (Perf): Return on assets (ROA) and return on equity (ROE), are the
most frequently used financial measures for firm performance in strategic literatures. The big factor that separates ROE and ROA is financial leverage or debt. The balance sheet's fundamental equation shows the assets are the sum of liabilities and shareholders’ equity, thus the different debt and equity structure among firms could cause significant difference in ROA and ROE. To this extent, return on equity is thus less appropriate for our study, and I used return on assets as an indicator for firm performance.
Independent variables: Product diversification (pro_div) and international diversification
Control variables: The first control variable is firm size: (firm_size). Generally, large firms
are related to better performance because of economies of scale, easy financial credit or managerial support for their subsidiaries. At the same time, Hennart (1998) argue that small firm size promotes the performance of subsidiaries because of the greater attention from their headquarters. Therefore, firm size is very important to firm performance. This study uses firms’ operating revenues in year 2006 as a measure of firm size.
The second control variable is sales growth (sales_growth). In Wan and Hoskisson’s study (2003), sales growth was used to capture the demand conditions facing a firm as well as product cycles effects, because firms operating in high-growth industries are likely to enjoy strong performance (Gedajlovic & Shapiro, 1998). Thus, this study considers sales growth as one of the control variables as well and measures sales growth as percent change in annual sales calculated by using total sales in 2006 and 2005.
The third control variable, financial leverage or debt-to-equity (leverage), is widely used in prior research. It is measured as the ratio of debt to equity in this study. The firm’s risk profile might be determined by the ratio of debt to equity, therefore the firm’s performance may be influenced by the leverage of the firm.
The fourth control variable is industry (industry). Since different industries may face different market conditions and require different level of institutions, this empirical study takes industry as a dummy variable. Thus, a MNE’s performance may be influenced by systematic differences between individual industries. Industry effect is captured by the four industry classifications based on a MNE’s primary business activity: industrial, transportation, banking and utility.
4.4 The Econometric Model
of control of corruption. For each group, it is not necessary to include the variable control of corruption. Regression will be run separately for these two groups and the two sets of regression analysis results will be used to estimate the influence of corruption. Formally, let A be the set of countries for which control of corruption is low, and let B be the set of countries for which control of corruption is high. Based on the Multiple Regression model, the econometric model will be expressed as
For each firm in A (eachi∈A), we estimate:
Perfi, =β0 + β1*(pro_div)i +β2*(int_div)i + β3*(firm_size)i+ β4*(sales_growth)i +
β5(leverage)i +β6(industry)i +ε i
And for each j∈B we estimate the same equation:
Perfj, =β′0 + β′1*( pro_div)j +β′2*( int_div)j +β′3 *(firm_size)j + β′4* (sales_growth)j +
β′
5(leverage)j +β′6(industry)j +ε j
Hence, conclusions will be based on evaluating β for each i and β′ for each j.
Firm performance is defined as dependent variable (DV), product diversification and international diversification are defined as independent variables (IV), and firm size, leverage, sales growth and industry are defined as control variables (CV), which are mentioned in the economic model. ε is error term, which consists of unexplained variations of the dependent variable firm performance, normally distributed with mean 0 and variance
5. RESULTS
Following the methodology section, this section explores the statistic results of four hypotheses in this study and explains the results about dependent variables and independent variables by concerning the control variables.
5.1 Descriptive Statistics
According to the Gauss-Markov theorem, the validity of any MR model depends on 5 underlying assumptions. Before running the regressions, several tests are necessary to check if assumptions hold, furthermore if there is a need for adjustment of the model. The statistic results are presented in table 4 and 5.
Table 4.1 and 4.2 present the mean, standard deviation and the correlations for all the variables. The normal procedure to test for Multicollinearity is to make a bivariate correlating table with pairs of variables, where correlation above 0.8 indicates an empirical problem. As the results shown in table 4.1 and 4.2 demonstrate, some correlations are higher than the others, but still below 0.8. Since multicollinearity can result in numerically unstable estimates of the regression coefficients, it is necessary to determine if there is any potential multicollinearity issue. Variance inflation factors are a scaled version of the multiple correlation coefficients between one variable and the rest of the independent variables. For each of the regression runs, variance inflation factors (VIF) could be examined. As shown in table 5, all of the VIF scores are below 10, which confirm that multicolinearity is not an issue in this empirical study.
The Durbin-Watson statistic is a test statistic used to detect the presence of autocorrelation in the residuals from a regression analysis. Its value always lies between 0 and 4. A value of 2 indicates there appears to be no autocorrelation. As a rough rule of thumb, if Durbin-Watson is less than 1.5, there may be cause for alarm. Shown in table 5, model 1 and model 2 both have values around 2 and not less than 1.5. Therefore, we can conclude that all the tests confirm there is no need for model specification adjustments.
5.2 Regression Analysis Results
As hypothesis 1 predicts, there is a statistically significant negative relationship between product diversification and firm performance in home country institutional environments with good control of corruption. This is shown by the value of P being P<. 10 in model 1, shown in table 6. Hence, hypothesis 1 is supported, however with low significance level.
Hypothesis 2 predicts there is a statistically significant positive relationship between product diversification and firm performance in home country institutional environments with poor control of corruption. The coefficients of production diversification in model 2, as reported in table 5, show there is a positive relationship, however, not significantly. Thus, this study could not give a significant conclusion on the positive relationship as hypothesis 3 predicted, even though we could see the possible negative relationship between product diversification and firm performance in home country institutional environments with poor control of corruption.
Hypothesis 3 states firm performance is positively related to international diversification in country institutional environments with good control of corruption. The coefficients of international diversification in model 1, as reported in table 6, show there is a positive relationship with P<. 10. According to the statistical results, hypothesis 3 is supported.
firm performance and international diversification, but with P>0.10. According to the statistical results, this study could not provide a significant support for hypothesis 4.
In contrast to the R-squared and adjust R-squared in Model 1 for the firms in the UK, they are relatively low in model 2 for the firms in Italy. Moreover, the regression models show a higher intercept term b0 in model 1 for home country institutional environments with good
6. DISCUSSIONS
This study shows that control of corruption is important in explaining the relationship between corporate diversification strategies and firm performance. Taking an institutional approach, we have developed and tested a detailed managerial and microeconomic explanation of such a relationship. Theoretically, corruption influences the rationality of diversification since it shapes the competitive position of a firm on its market. In contrast to a corruption free environment, corruption at home decreases the success of entering multiple geographical markets and increases the success of entering multiple product markets. The hypotheses are formed on the following logic:(i) In a corruption free environment, firms compete fairly and intensively due to the well controlled institutional environments. The direct effect is that it enables firms to specialize, and thereby becomes necessary to increase product competitiveness. The indirect effect is that the sophisticated home market sharpens firms’ competitive edge, and enables firms to benefit from international diversification. (ii) In a corrupt environment, a key asset that firms necessarily develop is governmental ties; these are easily exploited within the same environment on multiple product markets, however have no value in other political environments.
As theoretically predicted, the empirical results show that firm performance is negatively related to product diversification, but positively related to international diversification in the home institutional environments with good control of corruption. This implies that the corruption free environments as the UK allow firms to compete on the same level playing field, and sufficient rules of law set out to encourage economic efficiency by creating a climate favourable to innovation and technical progress. The philosophy suggested by this study also meets the objective of the EU. The EU competition commissioner, Neelie Kroes, stated, “An open, competitive Single Market is Europe’s biggest asset, unique in the world. Competition policy and effective enforcement will secure a level playing field – so all operators in the Single Market compete and win on merit alone. This is what generates investment, efficiency and innovation."
diversification and negatively related to international diversification as hypothesized, however not on a significant level. In contrast to the R-squared and adjust R-squared in Model 1 for the firms in the UK, they are relatively low in model 2 for the firms in Italy. The multiple regression model introduces R-squared as a measure of the proportion of variation in the dependent variable that is explained by variation in the explanatory variable. Therefore, R-squared gives the overall model’s goodness of fit. In AMADEUS database, I experienced some difficulties on finding both product and international diversified firms in Italy. Considering the limitation on collecting data for Italy, this study expects the hypotheses could be significantly supported by improving the sample of the firms.
Based on the empirical findings of this study, I would like to highlight the following points regarding corruption. Firstly, it may indicate that corruption hinders the objective of the European Union. The firms in the UK and Italy should enjoy the same fair and intensive competitive conditions. Secondly, it may warn policy makers that corruption will obstruct innovation and therefore technological progress. A corrupt environment makes specialization more costly due to inadequate rules of law. And this high cost of specialization makes product diversification a more attractive strategy. Consequently, firms have a disadvantage on international markets where they compete with rivals that do not face this relatively high cost of specialization. Empirical results also show firms in the UK have better performance than Italy. As mentioned in the result section; firms in UK have a higher β0 than ones in Italy. Eventually corruption may hurt the overall competitiveness of
a country. Thirdly, the findings suggest that corporate strategies may be largely conditioned by the country’s environmental context. While entering different institutional environments, MNEs may benefit from different strategic decisions.
REFERENCES
Anand J, Singh H. (1997). Asset redeployment, acquisitions and corporate strategy in declining industries. Strategic Management Journal, 18:99-118.
Bergara M E, Henisz W J, Spiller P T. (1998). Political institutions and electric utility investment: A cross-nation analysis. California Management Review, 40(2): 18-35.
Berlin M (1999). Jack of all trades? Product diversification in nonfinancial firms. Business
Review.Federal Reserve Bank of Philadelphia, May: 15-29
Brewer H L. (1981). Investor benefits from corporate international diversification. Journal
of Financial and Quantitative Analysis, 16:113-126.
Carter Hill R, Griffiths W E, Judge G G. (2001) Undergraduate Economics. John Wiley &
Sons, Inc.
Clague C.(1997). Introduction. In C. Clague (Ed.), Institutions and economic development: Growth and governance in less-developed and post-socialist countries. Baltimore: Johns
Hopkins University Press.
Commission for Africa Report. ( 2005) Our Common Interest: Report of the Commission for Africa (London) http://www.commissionforafrica.org
Delios A, Beamish P W. (1999). Geographic scope, product diversification and the corporate performance of Japanese firms. Strategic Management Journal, 20:711-727. Doukas J, Travlos N.G. (1988). The effects of corporate multinationalism on shareholders’ wealth: Evidence from international acquisitions. Journal of Finance, 43: 1161-1175. Eggertsson T.(1990). Economic behaviour and institutions. Cambridge, England:
Cambridge University Press.
Fredrickson J W, Iaquinto A L. (1989). Inertia and creeping rationality in strategic decision processes. Academy of Management Journal, Vol. 32 N, 3: 516-542.
Gedajlovic E, Shapiro D M. (1998). Management and ownership effects: Evidence from five countries. Strategic Management Journal, 19:533-553.
Geringer J M, Tallman S, Olsen D M. (2000). Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21(1), 51-80.
Grant R M. (1987). Multinationality and performance among British manufacturing companies. Journal of International Business Studies, 18:79-89.
Gulati R. (1995). Does familiarity breed trust? The implications of repeated ties for contractual choices in alliances. Academy of Management Journal, 38:85-112.
Hennart J F.(1998). A transaction costs theory of equity joint ventures. Strategic
Management Journal. Vol 9: 361-374
Hill C W L, Hoskisson R E. (1987).Strategy and structure in the multiproduct firm. Academy of Management Review, 12:331-341.
Hillman A J, Hitt M A (1999). Corporate political strategy formulation: A model of approach, participation and strategy decisions. Academy of Management Review, 24: 825-842.
Hine D. (1993). Governing Italy. The politics of Bargained Pluralism. Oxford, Clarendon
Press.
Hitt M A, Hoskisson R E, Kim H. (1997). International diversification: effects on innovation and firm performance in product-diversified firms. Academy of Management
Journal, 40:767-798
Hubbard G, Palia D (1998). A re-examination of the conglomerate merger wave in the 1960s: An internal markets view. National Bureau of Economic Research, Working paper 6539.
Johanson J, Vahlne J E. (1997). The internationalization process of the firm-a model of knowledge development and increasing foreign market commitments. Journal of Business
Studies, 8(1):23-32.
Kaufmann D. (2004). Corruption, governance and security: Challenges for the rich countries and the world. Global Competitiveness Report 2004/2005 for World Bank
Institute. Chapter 2.1
Kim W C, Hwang P, Burgers W P. (1993). Multinationals’ diversification and the risk-return trade-off. Strategic Management Journal, 14(6): 257-286.
Knack S, Keefer P. (1997). Does social capital have an economic payoff: A cross-country investigation. Quarterly Journal of Economics, 112:1251-1288.
Lu J W, Beamish P W. (2001) The internationalization and performance of SMEs.
Lu J W, Beamish P W. (2004) International diversification and firm performance: the S-curve hypothesis. Academy of Management Journal, vol. 47, 4 : 598-609
Montgomery C, Wernerfelt B. (1988). Diversification, ricardian rents, and Tobin’s q. Rand
Journal of Economics 19.
North Douglass C. (1993). New institutional economics and development. Working paper Rugman A M. (1976). Risk reduction by international diversification. Journal of
International Business Studies, 7:75-80.
Tallman S, Li J T. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of management journal, 39:179-196
Walsh J P, Seward J K.(1990) On the efficiency of internal and external corporate control mechanisms. Academy of Management Review, 15:421-458.
Wan W P, Hoskisson, R E. (2003). Home country environments, corporate diversification strategies, and firm performance. Academy of Management Journal, vol 40,1: 1, 27-45. Whitley R, Henderson J, Czaban L, Lengyel G. (1996). Trust and contractual relations in an emerging capitalist economy: The changing trading relationships of ten large Hungarian enterprises. Organization Studies, 17:397-420.
