The term business group generally refers to conglomerate firms with multiple majority-owned subsidiaries and minority-owned affiliates, engaged in a diverse array of business activities.;A recent stream of literature explains the predominance of these structures, typical of the emerging and transitional, from socialist to market-based economies, as a result of their ability to neutralize market failures, and to act as substitutes for imperfect economic, social and political institutions. In emerging countries, interlocking ties among firms are often created in order to make available scarce or nonexistent material and immaterial resources, as emerging economies are unlikely to be endowed with the combination of factors that promotes entrepreneurial activity. According to this traditional view, the extent of product and geographical diversification of the groups leads to better economic performance in emerging and transitional economies.;A main question is whether this causal nexus, from diversification to performance, is confirmed, or actually reversed in the case of Chinese business groups, due to the historical and institutional contingencies in act during the evolution of these groups. Many of them were formed under the encouragement or active pressure of the Chinese government, which selected the better performing firms to acquire bankrupt state-owned enterprises in related industries. To better understand the nature of the causal link, the study has been integrated with further research focused on the modality and outcomes of the transition from traditional SOEs to business groups. The literature screened offered empirical evidence based on longitudinal data analyses that supported both views on the causal relationship between diversification and performance for business groups in China.
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