Business Group, Nonmarket-Driven Diversification and Nonmarket Corporate Strategy

The private incentives of stakeholders can drive corporate diversifications. Controlling shareholders, management and government are important stakeholders and affect a firm’s diversification strategies. We regard such diversification pressed by the nonmarket incentives of stakeholders as nonmarket-driven diversification. This contrasts with standard market-driven diversification. Nonmarket-driven diversification is a subset of nonmarket corporate strategy and has been under researched in the literature. Nonmarket corporate strategy is a nonmarket extension of corporate strategy just as nonmarket strategy is mainly a nonmarket extension of business strategy. We hypothesize that firms affiliated with business groups are more likely to undertake nonmarket-driven diversification. This solves and provides a fresh perspective to the unresolved puzzle on the efficiency of corporate diversification and business groups.