Under what institutional conditions do business groups enhance innovation performance?

This study examines the institutional mechanisms through which business groups impact innovation in emerging markets. Rather than merely viewing groups as the result of a weak institutional environment, this study proposes that there are complementary elements between groups and institutions, enabling groups to benefit from interactions with their institutional environment. Evidence from a large sample of Chinese firms indicates that the effects of groups on innovation are pronounced when the group is affiliated to a higher level government agency and when the level of region-specific marketization is higher. The findings point to the context-dependent nature of the innovation and the existence of both substitution and complementary effects between business groups and institutions.