Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-10T14:53:50.029Z Has data issue: false hasContentIssue false
  • English
  • Français

Multi-Level State Capitalism: Chinese State-Owned Buisness Groups

Published online by Cambridge University Press:  22 November 2018

Jakob Arnoldi ,
Anders Ryom Villadsen ,
Xin Chen  and
Chaohong Na
Jakob Arnoldi*
Affiliation:
Aarhus University, Denmark
Anders Ryom Villadsen
Affiliation:
Aarhus University, Denmark
Xin Chen
Affiliation:
Shanghai Jiao Tong University, China
Chaohong Na
Affiliation:
Yunnan University of Finance and Economics, China
*
Corresponding author: Jakob Arnoldi (jaar@mgmt.au.dk)
Get access Rights & Permissions [Opens in a new window]

Abstract

We argue that vertical interlocks in Chinese state-owned business groups are important mechanisms for coordination and information exchange between the apex firm and affiliated firms, and that they are also mechanisms for government owners of the business groups to exercise control. By combining resource dependence theory with elements from transaction cost economics and agency theory, we propose that the need for interlocks increases the higher the level of government ownership. The central government is therefore more likely to use vertical interlocks than the provincial governments, which again are more likely to use vertical interlocks than the municipal governments. We develop three hypotheses based on these arguments. A regression analysis of a hand-collected data set finds strong support for our hypotheses. Our results shed light on coordination and governance issues within the state-owned sector in China and on an important means for mitigating these issues used by the government owners and firms affiliated with state-owned groups.

Keywords

business groupsChinagovernmentinterlocks
Type
Article
Information
Management and Organization Review , Volume 15 , Issue 1 , March 2019 , pp. 55 - 79
Copyright
Copyright © The International Association for Chinese Management Research 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This title has been revised since its original publication. A corrigendum detailing this change has also been published: doi 10.1017/mor.2019.1.

Accepted by: Senior Editor Lin Cui

References

REFERENCES

Arnoldi, J., & Villadsen, A. R. 2015. Political ties of listed Chinese companies, performance effects, and moderating institutional factors. Management and Organization Review, 11(2): 217–236.Google Scholar
Au, K., Peng, M. W., & Wang, D. 2000. Interlocking directorates, firm strategies, and performance in Hong Kong: Towards a research agenda. Asia Pacific Journal of Management, 17(1): 29–47.Google Scholar
Bai, C.-E., Lu, J., & Tao, Z. 2006. The multitask theory of state enterprise reform: Empirical evidence from China. The American Economic Review, 96(2): 353–357.Google Scholar
Baron, R. M., & Kenny, D. A. 1986. The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6): 1173–1182.Google Scholar
Bertrand, M., & Mullainathan, S. 2003. Pyramids. Journal of the European Economic Association, 1(2–3): 478–483.Google Scholar
Bhaumik, S. K., & Gregoriou, A. 2010. ‘Family’ ownership, tunnelling and earnings management: A review of the literature. Journal of Economic Surveys, 24(4): 705–730.Google Scholar
Boisot, M., & Child, J. 1996. From fiefs to clans and network capitalism: Explaining China's emerging economic order. Administrative Science Quarterly, 41(4): 600–628.Google Scholar
Buchwald, A. M., & Bischoff, O. 2016. Horizontal and vertical firm networks, corporate performance and product market competition. MPRA Paper No. 63413.Google Scholar
Chen, C. J. P., Li, Z. Q., Su, X. J., & Yao, Y. W. 2012. Delegation and sensitivity of CEO turnover to firm performance within business groups: Evidence from China. Journal of Accounting and Public Policy, 31(6): 553–574.Google Scholar
Chen, G., Firth, M., & Xu, L. 2009. Does the type of ownership control matter? Evidence from China's listed companies. Journal of Banking & Finance, 33(1): 171–181.Google Scholar
Chen, V., Li, J., & Shapiro, D. 2011. Are OECD-prescribed ‘good corporate governance practices’ really good in an emerging economy? Asia Pacific Journal of Management, 28(1): 115–138.Google Scholar
Chen, X., Arnoldi, J., & Na, C. 2015. Governance structure and related party loan guarantees: The case of Chinese family business groups. Management & Organization Review, 11(4): 599–619.Google Scholar
Claessens, S., Djankov, S., & Lang, L. H. P. 2000. The separation of ownership and control in east Asian corporations. Journal of Financial Economics, 58(1): 81–112.Google Scholar
Davis, G. F. 1996. The significance of board interlocks for corporate governance. Corporate Governance: An International Review, 4(3): 154–159.Google Scholar
Fan, J., Wong, T. J., & Zhang, T. 2013. Institutions and organizational structure: The case of state-owned corporate pyramids. Journal of Law, Economics, and Organization, 29(6): 1217–1252.Google Scholar
Foss, N. J., & Weber, L. 2016. Moving opportunism to the back seat: Bounded rationality, costly conflict, and hierarchical forms. Academy of Management Review, 41(1): 61–79.Google Scholar
Guillen, M. F. 2000. Business groups in emerging economies: A resource-based view. Academy of Management Journal, 43(3): 362–380.Google Scholar
Haunschild, P. R. 1993. Interorganizational imitation: The impact of interlocks on corporate acquisition activity. Administrative Science Quarterly, 38(4): 564–592.Google Scholar
Haunschild, P. R., & Beckman, C. M. 1998. When do interlocks matter?: Alternate sources of information and interlock influence. Administrative Science Quarterly, 43(4): 815–844.Google Scholar
He, J., Mao, X., Rui, O. M., & Zha, X. 2013. Business groups in China. Journal of Corporate Finance, 22: 166–192.Google Scholar
Hillman, A. J., Withers, M. C., & Collins, B. J. 2009. Resource dependence theory: A review. Journal of Management, 35(6): 1404–1427.Google Scholar
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305–360.Google Scholar
Jiang, G., Lee, C., & Yue, H. 2010. Tunneling through intercorporate loans: The China experience. Journal of Financial Economics, 98(1): 1–20.Google Scholar
Keister, L. A. 1998. Engineering growth: Business group structure and firm performance in China's transition economy. American Journal of Sociology, 104(2): 404–440.Google Scholar
Keister, L. A. 2001. Exchange structures in transition: Lending and trade relations in Chinese business groups. American Sociological Review, 66(3): 336–360.Google Scholar
Keister, L. A., & Zhang, Y. 2009. Organizations and management in China. The Academy of Management Annals, 3(1): 342–377.Google Scholar
Krug, B., & Hendriscke, H. 2008. Framing China: Transformation and institutional change through co-evolution. Management and Organization Review, 4(1): 81–108.Google Scholar
Li, L., Tian, G., & Yan, W. 2013. The network of interlocking directorates and firm performance in transition economies: Evidence from China. Journal of Applied Business Research (JABR), 29(2): 607–620.Google Scholar
Li, M. H., Cui, L., & Lu, J. 2014. Varieties in state capitalism: Outward FDI strategies of central and local state-owned enterprises from emerging economy countries. Journal of International Business Studies, 45(8): 980–1004.Google Scholar
Lin, L. W., & Milhaupt, C. J. 2013. We are the (national) champions: Understanding the mechanisms of state capitalism in China. Stanford Law Review, 65(4): 697–759.Google Scholar
Lin, N. 2011. Capitalism in China: A centrally managed capitalism (CMC) and its future. Management and Organization Review, 7(1): 63–96.Google Scholar
Lin, Z. J., Peng, M. W., Yang, H., & Sun, S. L. 2009. How do networks and learning drive M&As? An institutional comparison between China and the United States. Strategic Management Journal, 30(10): 1113–1132.Google Scholar
Liu, L. 2008. Local government and big business in the People's Republic of China – Case study evidence from Shandong Province. Asia Pacific Business Review, 14(4): 473–489.Google Scholar
Liu, Q., Zheng, Y., & Zhu, Y. 2010. The evolution and consequence of Chinese pyramids. Unpublished working paper.Google Scholar
Lu, Y., & Shi, X. 2012. Corporate governance reform and state ownership: Evidence from China. Asia-Pacific Journal of Financial Studies, 41(6): 665–685.Google Scholar
Lu, Y., & Yao, J. 2006. Impact of state ownership and control mechanisms on the performance of group affiliated companies in China. Asia Pacific Journal of Management, 23(4): 485–503.Google Scholar
Luo, Y. 2003. Industrial dynamics and managerial networking in an emerging market: The case of China. Strategic Management Journal, 24(13): 1315–1327.Google Scholar
Ma, J., & DeDeo, S. 2016. State power and elite autonomy: The board interlock network of Chinese non-profits. arXiv preprint arXiv:1606.08103v2.Google Scholar
Maman, D. 1999. Research note: Interlocking ties within business groups in Israel – A longitudinal analysis, 1974–1987. Organization Studies, 20(2): 323–339.Google Scholar
Meyer, M. W., & Lu, X. 2004. Managing indefinite boundaries: The strategy and structure of a Chinese business firm. Management and Organization Review, 1(1): 57–86.Google Scholar
Mizruchi, M. S. 1996. What do interlocks do? An analysis, critique, and assessment of research on interlocking directorates. Annual Review of Sociology, 22: 271–298.Google Scholar
Mookherjee, D. 2006. Decentralization, hierarchies, and incentives: A mechanism design perspective. Journal of Economic Literature, 44(2): 367–390.Google Scholar
Opie, W., Tian, G. G., & Zhang, H. F. 2017. Can corporate pyramids restrain overinvestment? Evidence from Chinese state-owned enterprises.Google Scholar
Peng, W. N. Q., Wei, K. C. J., & Yang, Z. S. 2011. Tunneling or propping: Evidence from connected transactions in China. Journal of Corporate Finance, 17(2): 306–325.Google Scholar
Pfeffer, J., & Salancik, G. R. 2003. The external control of organizations. Stanford: Stanford University Press.Google Scholar
Pombo, C., & Gutiérrez, L. H. 2011. Outside directors, board interlocks and firm performance: Empirical evidence from Colombian business groups. Journal of Economics and Business, 63(4): 251–277.Google Scholar
Riyanto, Y. E., & Toolsema, L. A. 2008. Tunneling and propping: A justification for pyramidal ownership. Journal of Banking & Finance, 32(10): 2178–2187.Google Scholar
Rommens, A., Cuyvers, L., & Deloof, M. 2007. Interlocking directorates and business groups: Belgian evidence. Working Paper, University of Antwerp, Faculty of Applied Economics.Google Scholar
Schoorman, F. D., Bazerman, M. H., & Atkin, R. S. 1981. Interlocking directorates: A strategy for reducing environmental uncertainty. Academy of Management Review, 6(2): 243–251.Google Scholar
Sutherland, D., & Lutao, N. 2012. The emergence and evolution of Chinese business groups: Are pyramidal groups forming? In Naughton, B. & Tsai, K. S. (Eds.), State capitalism, institutional adaptation, and the Chinese miracle: 102–153. New York: Cambridge University Press.Google Scholar
Verbeke, A., & Yuan, W. 2005. Subsidiary autonomous activities in multinational enterprises: A transaction cost perspective. Management International Review, 45(2): 31–52.Google Scholar
Walder, A. G. 1993. Corporate organization and local government property rights in China. In Milor, V. (Ed.), Changing political economies: 53–66. Boulder: Lynne Rienner Publishers.Google Scholar
Walder, A. G. 1995. Local governments as industrial firms: An organizational analysis of China's transitional economy. The American Journal of Sociology, 101(2): 263–301.Google Scholar
Wang, J., & Ye, K. 2014. Managerial agency costs of socialistic internal capital markets: Empirical evidence from China. Journal of International Financial Management and Accounting, 25(1): 1–37.Google Scholar
Weber, L., & Mayer, K. 2014. Transaction cost economics and the cognitive perspective: Investigating the sources and governance of interpretive uncertainty. Academy of Management Review, 39(3): 344–363.Google Scholar
Williamson, O. E. 1981. The economics of organization: The transaction cost approach. American Journal of Sociology, 87(3): 548–577.Google Scholar
Williamson, O. E. 1983. Markets and hierachies: Analysis and antitrust implications. New York: Free Press.Google Scholar
Williamson, O. E. 1988. Corporate finance and corporate governance. Journal of Finance, 43(3): 567–591.Google Scholar
Yang, Y., & Cai, N. 2011. Interlocking directorate and firm's diversification strategy: Perspective of strategy learning. In M. Dai (Ed.), Innovative computing and information: 87–94. Berlin, Heidelberg: Springer.Google Scholar
Yi, Z., & Xi, L. 2006. Ownership structure and corporate diversification. Business & Politics, 8(1): 1–19.Google Scholar
Yiu, D. W., Lu, Y., Bruton, G. D., & Hoskisson, R. E. 2007. Business groups: An integrated model to focus future research. Journal of Management Studies, 44(8): 1551–1579.Google Scholar
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. 2008. Corporate governance in emerging economies: A review of the principal–principal perspective. Journal of Management Studies, 45(1): 196–220.Google Scholar
Xu, C. 2015. China's political-economic institutions and development. Cato Journal, 35(3): 525–548.Google Scholar
Zajac, E. J. 1988. Interlocking directorates as an interorganizational strategy: A test of critical assumptions. Academy of Management Journal, 31(2): 428–438.Google Scholar
Zhang, Q. 2016. A comparative study of the effect of interlocking directorates on merger target selection under different merger and acquisition modes. American Journal of Industrial and Business Management, 6(3): 259–267.Google Scholar