Employment and Market Innovation in Chinese Business Group Affiliated Firms: The Role of Group Control Systems

Institutional theory in international business studies: the period of period of 1990–2018

Purpose

The purpose of this study is to evaluate different strands of institutional theory within the internationalization process of multinational enterprises (MNEs) in developed and emerging economies. In the light of this purpose, the authors try to fill the gap in the literature through analysing the main institutional theories: neo-institutionalism, new institutional economics, comparative capitalism and the institution-based view. Therefore, the main concern is to determine the distribution of different strands of institutional theory in its subfields in this study.

Design/methodology/approach

This study provides a profound analysis of different strands of institutional theory within the period from 1990 to 2018 in a larger sample. With a qualitative content analysis, authors reviewed 150 articles using different strands of institutional theory at both theoretical and analytical level and accessed 25 journals published in Social Science Citations Index between 1990 and 2018. In this study, authors used the inductive approach and the qualitative content analysis (Duriau et al., 2007) and adopted a research method to investigate different strands of institutional theory within the internationalization process of MNEs in developed and emerging markets (EMs).

Findings

Coders have synthesized the strands of institutional theory in detail to analyse the theoretical contribution of the study. The strands of institutional theory have been analysed both by institutional perspective and citation analysis. Coders classify the analysis level into three main categories. These are country, headquarter and subsidiary level. Our findings are related to the basic determinants and assumptions of different strands of institutional theory. Because in new institutional economics, analysis levels are country and industry. On the other hand in institution-based view, analysis levels are country and firm. Finally in comparative capitalism, analysis levels are country and region and, in neo-institutionalism analysis level is organization itself. In this study, findings show that sociology-based institutional strands, especially neo-institutionalism, are more preferred than other theories.

Research limitations/implications

This study’s content analysis is limited to scope of selected journals. However, this study may suffer from publication bias. The authors examined only peer-reviewed articles from selected journals and did not include book chapters, book reviews, editor and special issue editor articles, research notes, conference papers and congress invitations. The important theoretical limitation of this study is to clarify the different strands of institutional theory in international business literature (Aguilera and Grøgaard, 2019). The firm size of MNEs is not included in this study, but it should be involved in coding categories in future studies.

Originality/value

This study provides the largest sample up to now and covers developed markets and EMs. Authors analysed this research from four perspectives: theoretical foundation, methodology, location and entry mode choices. On the other hand, this study shows that the institutional environment not only mitigates or mediates the effects but also directs the effects on foreign direct investment’s internationalization process of location choice and entry strategies.

Dynamic Innovation Strategy Model in Practice of Innovation Leaders and Followers in CEE Countries—A Prerequisite for Building Innovative Ecosystems

The task of each firm’s strategic management is to identify those sustainable sources of competitive advantage that represent a way to achieve business goals and competitive advantage. Business management should be able to define determinants that fundamentally influence the innovation activity of business. Innovation leaders are influenced by the same set of determinants that allow them to maintain their position in the market. Identifying these determinants is a key source of knowledge for defining or adjusting corporate strategies, enabling sustainable benefits and for efficient building and functioning of countries’ innovation ecosystems based on cross-agents’ interactions leading to sustainable development. The goal of this paper is to identify the combination of innovation determinants in Dynamic Innovation Strategic Model (DISM) driving creation and sustaining innovation leaders’ competitive advantage in selected European countries belonging to the group of moderate innovators. Likewise, authors define a unique set or combinations of factors that will (fundamentally embedded in a company strategy) have a significant impact on the innovative production of the business, which are one of the key elements of innovative ecosystems. With the use of CIS data (from Eurostat) on the innovators and followers of nine EU countries and own regression models, the key determinants of the success of the innovation leaders and followers were found. These determinants are (also in appropriate combination) mainly: in-house R&D activities, co-operation with various partners, and marketing and design. The results clearly show that for innovative leaders, key determinants have a positive impact on produced innovations; for the followers, the same group has a negative influence.

Value Constraining or Value Enabling? The Impact of Business Group Affiliation on Post-Acquisition Performance by Emerging Market Firms

Literature has advanced two contrasting theoretical perspectives related to the governance structure of business groups: the ‘value-constraining’ perspective, which focuses on principal–principal agency conflict and organizational inertia theory, and the ‘value-enabling’ perspective, which emphasizes the role of business groups in mitigation of institutional voids. Building on these two competing lenses, we develop hypotheses to examine post-acquisition performance of affiliate firms relative to stand-alone firms. As our empirical context, we study 440 majority-stake, domestic and cross-border merger and acquisition deals closed by Indian firms during the period 2002–2013. The results imply that in emerging markets, despite concerns of organizational inertia and principal–principal agency issues, the value-enabling impact of group affiliation persists. We also examine the contextual impact of intergroup heterogeneity owing to group diversification on post-acquisition performance and find that greater group diversification leads to better performance for affiliate acquirers.

The role of related party transactions on sukuk financing

Purpose

The Islamic bond, known as sukuk, is an ethical financing avenue driven by religious and profit motives. This study aims to analyze the relation between related party transactions and Sukuk. Companies with high related parties transactions are deemed to be committed toward social capital that they are more likely to choose sukuk for their debt financing.

Design/methodology/approach

Logistic regression analyses were conducted using data from 122 listed companies in Malaysia. Related party transactions proxy for companies’ commitment to social capital, while the likelihood to choose sukuk represents ethical financing.

Findings

This study documents a positive relationship between related party borrowings and sukuk, suggesting that close ties through related parties have created an ethical sense that is associated with the uptake of sukuk.

Research limitations/implications

Future research can opt other measures of related party transactions, such as by identifying the different categories of transactions and related parties. Future research may also extend the sample size by using samples from several countries to enable analysis involving institutional environment variables of the countries.

Practical implications

Findings of this study highlight sukuk uniqueness by supporting its role as ethical financing avenue through commitment toward social capital.

Originality/value

This study is the first to use the social capital perspective of related party transactions in identifying ethical financing choice that the authors believe is relevant in the institutional context of developing Muslim countries.

Empirical Research on Corporate Governance in China: A Review and New Directions for the Future

The ownership structure of Chinese firms has experienced significant changes over the last three decades, including the development of a fast growing stock market through which a large number of domestic firms have become publicly traded corporations. These changes have drawn increasing attention from researchers of corporate governance. In this article, we review the empirical research on corporate governance in China, with a focus on the internal and external governance mechanisms that have been investigated and the findings about the effectiveness of these mechanisms. On the basis of our review of 132 studies, we summarize the major findings and discuss the limitation of agency theory in understanding the governance issue in Chinese firms. We offer several ideas (e.g., the importance of the social context, new conceptualization of governance, different outcomes of governance, and data/method issues) for a new agenda to guide future research in the corporate governance of firms operating in the Chinese and other emerging economy contexts.

A New Agenda for Research on the Trajectory of Chinese Capitalism

This article sets a new agenda for research on the trajectory of Chinese capitalism. We first critically review the conflicting views on the causes of China's economic development. Then we suggest that insights from the comparative capitalism and economic sociology literatures can provide theoretical tools to understand the critical features of Chinese capitalism in a more systematic manner. The comparative capitalism literature can help us understand how Chinese capitalism resembles or differs from other varieties of capitalism in terms of the relationships between government, firms, and workers. The literature on economic sociology provides insights about how particular markets have evolved and become stabilized. We use these perspectives to suggest a set of possible research agendas for studying Chinese capitalism.

Multinational Advantages of Chinese Business Groups: A Theoretical Exploration

Prior research on the internationalization of emerging market firms focused either on established incumbent firms or peripheral latecomer firms. However, an increase in outward foreign direct investment from emerging markets such as China has benefitted from a new organizational form – business groups. Given that new organizational forms pose fundamental challenges to existing theories on multinational enterprise, an examination of business group internationalization will bring the literature of multinational enterprise theories forward. Adopting an organizational approach, I propose that business groups, an organizational form that emerged to substitute market imperfections in China, constitute a micro-institutional environment for generating ownership, location, and internalization advantages, as well as for capitalizing on the linkage, leverage, and learning opportunities for internationalization. I posit that Chinese business groups facilitate such an internationalization process via their unique attributes including internal market, inward linkages, and institutional support. The article aims to provide a theoretical framework that generates insights for China's policy makers and managers, and to guide future research.

Product Innovations in Emerging Economies: The Role of Foreign Knowledge Access Channels and Internal Efforts in Chinese Firms

In this paper, we theoretically and empirically investigate factors that contribute to product innovation by firms in emerging markets. Combining the innovation literature with the latecomer literature on ‘catch-up’ strategies of firms in newly industrialized economies, we posit that access to foreign knowledge is essential for fostering product innovation. In particular, we investigate how innovation clusters formed by inward foreign direct investments in an emerging market and export activities of a firm are effective channels for acquiring foreign knowledge. We also suggest firms that invest in research and development and marketing activities benefit further from access to foreign knowledge due to increased absorptive capacity. Empirically, we employ information on over 160,000 indigenous manufacturing firms in China in 2005–2006. We find strong empirical support for our theoretical framework and conclude by discussing the implications for both theory and managerial practice.

Transformation of State-owned Enterprises in China: A Strategic Action Model

Transformation is a vital challenge for Chinese state-owned enterprises (SOEs) and their top managers. To explore this increasingly important topic, we first summarize the institutional context of SOE transformation and the conflicting interests and interdependent relationships of six major actors as inside/outside stakeholders. Based on the strategic action view of institutional analysis, we emphasize the role of the change agent's level of aspiration and political skills in transforming an SOE. Then, through inductive case studies on the transformation of three SOEs, we address how top managers, acting as change agents, can initiate and engage in institutional change through strategic actions such as negotiation, manipulation, and coercion; we also illustrate how they adopt different actions to influence different actors. Based on the inductive results, we develop a theoretical model, which we refer to as the ‘strategic action model’ that shows how the aspiration level, political skills, strategic actions, and change outcomes interrelate and offer insights into the strategic action of top managers as change agents. Our most important contribution is revealing the interplay between the proactive role of inside actors as change agents and the enabling condition of institutional context.

Capitalism in China: A Centrally Managed Capitalism (CMC) and Its Future

While China continues to develop capitalistic capacities, the party-state has increasingly tightened control of the economy and synchronized political and economic stratification – a tendency towards acentrally managed capitalism. Under centrally managed capitalism, the party-state commands the economy by controlling personnel, organizations, and capital in both political and economic arenas. At the same time, it delegates fiscal and administrative authorities to multiple and diversely formed corporations to compete in the marketplace. I further speculate on future ideological alternatives: a western-style democracy, a mature-stage socialism, or an enlightened authoritarianism –Xiaokang(小康 moderate prosperity or well-off society). After eliminating or casting doubt on the former two, I argue that a two-step transformation towardsXiaokangis under way. In the first step, the party-state leadership gradually decouples its position from Marxist ideology of communism and socialism, and moves towards the maintenance of economic growth and social order. The second step then allows the legitimacy of party rule to be based on indigenous Confucian ideology that emphasizes enlightened leaders, moral institutions, and social relations (i.e.,Xiaokang). Finally, I explore the feasibility and paths towards an indigenous ideology of democracy (Datong: 大同 – universal harmony).

Business Group Performance in China: Ownership and Temporal Considerations

We address the institutional voids hypothesis, which suggests affiliation with a business group will improve a firm's performance in circumstances of poor-quality institutions and extensive market failures. We hypothesize that initial positive effects of group affiliation should decline as the quality of market institutions improves. Further, we hypothesize that differences in state and private ownership will influence the value and persistence of firm affiliation. Using data on 476 publicly listed firms in 1999 and 467 matched firms in 2004, we find support for a temporal hypothesis that affiliation with a business group improves performance, but the value of group affiliation declines over time. We also find support for a state ‘helping hand’ hypothesis that suggests firms with high levels of state ownership initially experienced an amplified value effect from their group affiliation, which disappeared by 2004. The results suggest that China's policy makers are beginning to establish an institutional and market infrastructure that is conducive to entry by unaffiliated, freestanding firms.