Engineering growth: Business group structure and firm performance in China's transition economy

Business groups have received increasing attention from academics intereste d in interorganizational relations and their impact on firms. As part of in dustrial reform, the Chinese government began in the mid-1980s to encourage firms to form business groups with structural characteristics that promise d to enhance financial performance and productivity. Using 1988-90 panel da ta on China's 40 largest business groups and their 535 member firms, the st udy finds that the presence and predominance of interlocking directorates a nd finance companies in business groups improved the financial performance and productivity of the groups' member firms. In addition, firms in groups with nonhierarchical organizational structures performed better than firms in hierarchical groups, suggesting that complete integration into a hierarc hical organization is not an optimal strategy.