Abstract
We extend the business group (BG) literature by combining the knowledge-based perspective and the dynamic capabilities view to explain the benefits of group affiliation. In the BG context, group affiliates can use not only their own firm-level knowledge-based assets (KBAs), but also group-level KBAs. While prior research examines the efficiencies of BG affiliation by comparing BG affiliates to non-affiliated firms, we ask to what extent affiliate-specific rents from group-level KBAs vary among affiliate firms and why. To explain this variation, we identify affiliate-specific rents generated by the complementarity between firm- and group-level KBAs. Drawing from the dynamic capabilities view, we developed a framework to explain the sources of such complementarity and tested a series of hypotheses. This study provides empirical evidence using firm-level data on 524 affiliates of keiretsu groups in Japan from 1985 to 2015. To measure KBAs and their characteristics, we use data on 11.5 million patents matched to the sample firms. This study provides a knowledge-based perspective to explain BG affiliation benefits and the persistence of BGs as an organizational form of economic activity.
