Three essays on the linkage between corporate and business strategies
Lee, Ji-Ren
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Permalink
https://hdl.handle.net/2142/20519
Description
Title
Three essays on the linkage between corporate and business strategies
Author(s)
Lee, Ji-Ren
Issue Date
1994
Doctoral Committee Chair(s)
Tang, Ming-Je
Department of Study
Business Administration
Discipline
Business Administration
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Management
Economics, Commerce-Business
Language
eng
Abstract
This dissertation presents three essays exploring the impact of corporate diversification on a business-unit's (BU's) performance, a research which reflects the linkage between corporate-level and business-level strategies. One distinguishing feature of this research is that it explicitly recognizes two key attributes of competition among diversified firms which have been overlooked by previous research: that is, for diversified firms, competition occurs at the business-unit level, rather than at the corporate-level, and the nature of multimarket operation could have strategic impacts on existing competition.
The first essay investigates whether multimarket contact will develop a sense of mutual forbearance between interacting firms and, consequently, affects these firms' strategic behavior and ensuing economic performance. Based on a large-scale database, this research shows that multimarket contact can significantly strengthen a firm's profit-cost margins when oligopolistic coordination is difficult to achieve. In addition, this research provides further evidence to show that multimarket contact enhances significantly industry profitability, stabilizes firms' market shares, and could even become a price umbrella for single-business firms in the same industry.
The second essay explores whether diversification will affect a firm's corporate-level commitment of R&D resources to the BUs, and hence affect the ensuing economic performance of the BUs. After controlling for interindustry differences, this research demonstrates that corporate diversification of high-technology firms does affect negatively their R&D investment levels. However, statistically such a commitment reduction in innovative activities does not depress BUs' performance. Further analyses suggest that such a puzzle may be explained by different strategic behaviors of diversified firms relative to single-business firms facing technology opportunities.
The last essay provides a preliminary examination on the determinants of the allocation of corporate capital expenditures to the BUs within a diversified firm. Results show that companies tend to maintain a stable pattern of relative capital expenditure for their BUs, and higher past performance leads to higher subsequent commitments of capital resources. Meanwhile, the hypothesis that the allocation of capital resources is based on portfolio planning concept did not receive empirical support in this research.
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