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Keywords:

  • corporate governance;
  • shareholding groups;
  • diversification;
  • Indian industry

Abstract

The relationship between ownership and diversification has been the focus of renewed debate between financial economists and strategic management scholars. While financial economists hold that manager-controlled firms tend to reflect higher levels of diversification, strategy researchers argue that ownership and diversification are not systematically related. In throwing light on this debate, this study uses a fine-grained definition of ownership groups to explore how the different objectives and monitoring predispositions of distinct ownership groups might influence diversification strategy. The empirical examination is set in India to offer a striking contrast from the predominantly U.S.-based studies that have shaped the ongoing debate. Findings show that diverse ownership groups adopt different postures in monitoring and/or influencing organizational diversification. While some ownership groups are closely associated with focused strategies, and some encourage diversification, others are quite indifferent. These results suggest that the context-specific variation among ownership groups is germane to our understanding of diversification strategy. Copyright © 2002 John Wiley & Sons, Ltd.