Explaining Whole Network Performance: The Role of Centralization in Business Groups

Arguing that the network level is an important domain, we shift the level of analysis from the firm to the network and explore how the overall network structure influences whole network performance. Using the context of interfirm director ties within business groups in Taiwan in 1981-2006, we propose that network centralization, or the degree to which director ties are concentrated in one or a few firms or dispersed across affiliates, exerts positive though non-linear effects on business group performance, measured as group ROA. We also find that the performance effects of network centralization are enhanced by family ties but diminished by business group diversity.