Chinese Firms Research Articles

How Digital Transformational Leadership Promotes Digital Creativity: A Dual-path Mediation Model

This study explores the dual-path mechanisms for the influence of digital transformational leadership on employees’ digital creativity. A questionnaire survey of 300 knowledge-based employees in several Chinese firms was conducted, and 219 valid questionnaires were obtained. We conducted structural equation modeling using Mplus to analyze our data. The results show that digital transformational leadership has a significant positive effect on digital creativity. Openness to change and change self-efficacy mediates the relationship between digital transformational leadership and digital creativity. Importantly, openness to change and change self-efficacy play a chain mediating role in the effect of digital transformational leadership on digital creativity—that is, digital transformational leadership increases their openness to change and change self-efficacy, which in turn contributes to their digital creativity. By enriching research in the field of creativity, this study is also instructive for guiding and promoting employees’ digital creativity.

Outward direct investment as a shelter from external trade policy shocks: Firm‐level investigation of the US–China trade war

AbstractThis study examines the effects of external trade policy shock from the US–China trade war on firm value. Using a merged data set of Chinese‐listed companies, our empirical results reveal that Chinese firms conducting outward direct investment in the US have significantly higher stock returns around the date of the outbreak of the trade war as compared with the lower returns of exporting firms. This indicates a sheltering effect of pre‐existing outward direct investment activities. Moreover, we find that the sheltering effect is more pronounced for production‐oriented projects, high tech industries and tariff‐targeted sectors, while it is weaker for state‐owned companies.

DIVIDEND POLICY IN MAINLAND CHINA AND THE US: A STUDY ON NON-FINANCIAL LISTED COMPANIES

This paper aims to assess the common characteristics of dividend payers and non-payers in both China and the US, as well as the stability of dividend policies in each respective nation. The study addresses issues related to catering theory, signal theory, smoothing assumptions, and Fama-French hypotheses. Our analysis covers 509 non-financial firms during the period 2006-2016, comprising 419 firms from the US and 90 firms from China. The multinomial regression reveals that past dividend payouts are critical in explaining dividend policy in both the US and China. Firms that have consistently paid higher dividends in the preceding year are more likely to opt for dividend increases rather than omitting dividends, thus aligning with the dividend smoothing hypothesis. Additionally, firm size and stock market performance were found to be significantly influencing dividend payouts across different categories in both the US and China. However, US firms primarily drove dividend payouts through profitability and the dividend premium, while firm size and leverage heavily influenced Chinese dividends. Interestingly, Chinese firms appear to practice a less sticky dividend policy than US firms, implying that the role played by dividend policy in signalling and catering theories in China is less significant than in the US.

CEO Age and Capital Structure Dynamics: The Moderating Effect of Overconfidence and Tenure

ABSTRACTThe Upper Echelons theory suggests that managerial characteristics will likely influence their financial decisions. Consistent with this theory, we examine CEO age's impact on Chinese firms' capital structure dynamics. We also investigate the moderating effects of overconfidence and tenure on the relationship between CEO age and capital structure. Using 18,235 firm‐year observations from Chinese listed firms, we document a positive relationship between CEO age and leverage. The results show that the CEOs' age‐overconfidence and age‐tenure relationship have an inverse relationship with leverage. Particularly, we find that CEO overconfidence and tenure impact market leverage more than book leverage. Our sensitivity analysis indicates that young CEOs use less debt, consistent with the market‐leaning hypothesis. We also find a positive relationship between CEO age and leverage in state‐owned enterprises. Our results are robust for decomposition analysis, selection bias test and endogeneity.

Textual Attributes of Corporate Sustainability Reports and ESG Ratings

While the textual attributes of corporate financial documents, such as annual reports, have been extensively analyzed in the academic literature, those of corporate sustainability reports, which serve as a critical channel for nonfinancial disclosure, are relatively under-explored. Given the increasing importance of Environmental, Social, and Governance (ESG) factors in corporate strategy and stakeholder evaluation, understanding the role of textual attributes in sustainability reporting is crucial. This study examines 10,021 hand-collected sustainability reports from Chinese firms between 2009 and 2021, focusing on six key textual attributes: length, readability, tone, boilerplate language, redundancy, and completeness. Using computational linguistics, we analyze how these attributes evolve over time and their impact on ESG ratings provided by both international (MSCI, FTSE) and domestic (SNSI) agencies. Our findings reveal that the length and completeness of sustainability reports significantly influence ESG scores across agencies, demonstrating a shared appreciation for detailed and transparent disclosures. However, international and domestic rating agencies exhibit differing responses to attributes like tone, boilerplate language, and redundancy. These differences highlight variations in evaluation standards, methodologies, and value orientations between global and local stakeholders. The results emphasize the need for firms to tailor their sustainability disclosures to meet diverse stakeholder expectations. This study contributes to the growing body of literature on nonfinancial reporting by providing empirical evidence on how specific textual characteristics of sustainability reports can shape ESG evaluations, offering insights for both corporate communicators and policymakers.

Corporate Endorsement of Controversial Nationalist Movement: Influences of Divergent Customers and Consequences

A growing body of research has revealed that firms leverage nationalism in their strategies. However, it is unclear why some firms are more likely to do so than others. This paper uses institutional theory to address this question and examines the influences of domestic and foreign customers. We study firms’ responses to nationalist movements, a type of sociopolitical mobilization arising in response to international controversies. We argue that, as firms attempt to maintain legitimacy with their customers, those with more domestic customers are more likely to endorse nationalist movements, whereas those with more foreign customers from antagonistic countries are less likely to do so. Furthermore, reputation-sensitive customers exert a stronger influence than other customers. However, when firms have foreign customers who are targets of nationalist movements, they face an urgent need to demonstrate their patriotism and hence are more likely to endorse nationalist movements. We find support for these theoretical propositions in a study of Chinese firms’ endorsements of a nationalist movement. Chinese firms that endorsed the movement obtained short-term gains in the stock market and domestic sales but no significant growth in overall sales. These findings contribute to the research on antecedents of firms’ strategic leverage of nationalism, organizational responses to institutional complexity, and corporate side-taking in sociopolitical controversies.

Digitization and Green Technology Innovation of Chinese Firms Under Government Subsidy Policies

In the context of the digital economy, digital technology is an important driving force to promote green development and achieve the “dual-carbon goal”. Taking 1746 Shanghai and Shenzhen A-share enterprises from 2015 to 2022 as research objects, we empirically examine the relationship between government subsidies, digital transformation, and corporate green technology innovation. The study shows that (1) there is an inverted “U”-shaped relationship between government subsidies and corporate green technological innovation, while digital transformation plays a mediating role, and there is a difference between the quality and quantity of digital transformation in promoting green technological innovation. (2) Through the analysis of the moderating effect, it is found that market concentration has an obvious inhibitory effect between enterprise digital transformation and green technology innovation. (3) The study, by classifying the nature of enterprises, shows that the promotion effect of digital transformation on green technology innovation is weaker under heavily polluted enterprises than under non-heavily polluted enterprises, but the promotion interval of the relationship between government subsidies and green technology innovation is larger. Therefore, enterprises should make full use of digital technology to inject new impetus into their innovation activities, and the government should fully consider the appropriate space for enterprises to receive subsidies, make reasonable use of the incentive effect of government subsidies, and smooth the information docking channels for government and enterprise subsidies.

The interplay of digital transformation, agility, environmental volatility, and innovation to spur enterprise performance: Evidence from Chinese electric vehicle firms

Given the rapid growth of China's electric vehicle (EV) industry, with sales expected to reach over 10 million units annually by 2025, there is an urgent need to understand how digital logistics, supply chain agility, and innovation can drive sustainable performance amidst increasing environmental volatility. This study utilises the dynamic capability theory and proposes a framework that examines the interplay between digital transformation, agility, dual innovation, environmental volatility, and enterprise performance. A survey was circulated among the managers working in the EV industry. We received 197 responses. The data was analysed using Smart PLS software using structural equation modelling (SEM). The findings reveal that digital transformation has significant positive relationships with enterprise performance, agile capability, and innovation capability. Additionally, agile and innovation capabilities have positive effects on enterprise performance. The study recommends investment in digital transformation programs and fostering an agile, innovative culture in the EV industry.

Can the European nuclear power industry compete with the Chinese nuclear power industry?

European commissioner for the Internal Market, Thierry Breton, told Le Journal du Dimanche in January 2022, “Existing nuclear plants alone will need 50 billion euros of investment from now until 2030. And new generation ones will need 500 billion”. This paper considers whether these values are realistic. Further, it asks whether these investments would yield an internationally competitive European nuclear power infrastructure given that the nuclear power industries in the Organization for Economic Cooperation and Development member countries have lost global nuclear market share to Russian and Chinese firms since 1995.The paper investigates whether the European nuclear industry even with massive investment can compete with the Chinese nuclear industries. It concludes that the European (in particular, the French) nuclear power industry will be unlikely to be cost competitive with the Chinese nuclear power industry unless financing and new plant orders are immediately forthcoming. To achieve carbon neutrality, the issue becomes whether European Union countries can afford indigenous nuclear technologies or will need to import nuclear power plants from Asia.

The impact of economic policy uncertainty on corporate environmental information disclosure: the moderating role of media attention and financing constraints

Economic policy uncertainty (EPU) is a major source of risk that could affect corporate environmental behaviors. We investigated the impact of EPU on environmental information disclosure by using 15,308 firm-year observations from 2,316 Chinese manufacturing firms between 2010 and 2020. Our study shows that EPU can be an incentive for firms to disclose environmental information. This finding supports the voluntary disclosure theory that firms are prone to disclose more environmental efforts in times of high EPU. Furthermore, the results show that the positive relationship between EPU and corporate environmental information disclosure can be positively moderated by media attention and financing constraints. Firms in competitive industries and heavily polluting industries provided better environmental information disclosure when facing uncertainty. Our results provide implications that managers should emphasize the quality of disclosure and use environmental information disclosure as a key strategy to deal with EPU.

Industrial Policy Environment and Private Equity Placement: Evidence from Chinese Real Estate Firms

Over the past four decades, China’s real estate industry has experienced rapid growth, accompanied by frequent regulatory interventions. These shifts present an ideal context for examining the characteristics of private equity placements (PEPs) under varying industrial policy environments. This study examines the PEPs of Chinese real estate firms from 2006 to 2023, calculating the cumulative abnormal returns during announcement periods and the transaction discounts across various regulatory phases. The analysis reveals significant positive announcement effects, even in times of policy tightening, with these effects becoming more pronounced during periods of policy relaxation. However, regression analyses suggest that the policy environment does not significantly impact the announcement effects. Contrary to traditional views, PEP discounts tend to be shallower during policy tightening and deeper during policy loosening. Further analysis indicates that investors are willing to accept smaller discounts in exchange for more valuable investment opportunities.

Marketing affordance of social media for product innovation: the role of organizational structures

PurposeDespite substantial research attention on the business use of social media in innovation literature, the action-based mechanisms through which social media affect firms' product innovation remain unclear. We address this gap by drawing on the affordance theory and examining the effects of social media applications on product innovations.Design/methodology/approachThe study was based on analyzing data collected through a questionnaire survey of Chinese firms. Partial least squares structural equation modeling was applied to test the hypotheses.FindingsThe results show that social media applications have a positive effect on marketing affordances (including customer behavior pattern discovery, real-time market response and marketing ambidexterity), in turn positively influencing product innovation performance. Organizational structures shape the actualization of the marketing affordance of social media; while organizational formalization positively moderates the relationships between social media application and marketing affordances, organizational centrality weakens these relationships.Practical implicationsManagers will benefit from understanding how social media can be applied to help their firms achieve product innovation. When manufacturing firms engage in social media for product innovation, they may find it worthwhile to focus on marketing actions such as customer behavior pattern discovery, real-time market response and marketing ambidexterity.Originality/valueThis study elucidates the action-based mechanism of marketing affordance by which social media usage improves product innovation performance. This study also highlights the design of organizational structure as an important approach to realizing the potential benefits of social media in product innovation.

Collusion or supervision? Between auditor and audit firm – tax planning’s perspective

PurposeThis study aims to investigate the impact of auditor industry specialization (AIS) on clients’ tax planning at the audit firm level and individual auditor level, respectively.Design/methodology/approachThe study’s sample consists of 44,637 firm-year observations of Chinese firms listed on the Shenzhen and Shanghai Stock Exchanges during the period from 2002–2020. The data are collected from the Taiwan Economic Journal. Panel regression is used to test hypotheses. Additionally, a two-stage least squares model is used to address concerns about possible endogeneity.FindingsThe relationship between tax planning and AIS is significantly positive at the audit firm level, while it is significantly negative at the individual auditor level.Originality/valueThe authors use manually collected data to investigate the distinct impacts of two AIS metrics on tax planning: the number of clients and the scale of clients.

The Impact of ESG Performance on the Financial Performance of Chinese High-Tech and Internet Industry Firms

This study aims to explore the impact of Environmental, Social, and Governance (ESG) performance on the financial performance of firms in China’s high-tech and internet industries. Using annual data from 100 companies spanning from 2015 to 2022, a fixed effects model is applied for empirical analysis. The study finds that overall ESG performance has a significant positive impact on firms' return on assets (ROA) and net profit margin (NPM), with the governance (G) and social (S) dimensions showing particularly strong effects. While the environmental (E) dimension has a weaker short-term impact on financial performance, its long-term benefits are undeniable. Firm size and market share also have significant positive effects on financial performance. The results suggest that optimizing governance structures and actively fulfilling social responsibilities can enhance financial performance, while long-term investments in environmental responsibility should be integrated into corporate strategies. Overall, the findings provide empirical evidence for companies in formulating ESG strategies and offer specific policy recommendations for the sustainable development of China’s high-tech and internet industries.

Forecasting financial distress in listed Chinese construction firms: leveraging ensemble learning and non-financial variables

The construction industry, characterized by high business failure rates due to complex, capital-intensive projects, is crucial for China’s economy. Predicting financial distress and early warnings is crucial to prevent crises. While financial ratios are commonly used, non-financial information remains underexplored, with limited empirical evidence supporting its effectiveness in enhancing predictive accuracy. Additionally, most studies on financial distress prediction focus on constructing single classifiers without utilizing ensemble models that integrate multiple algorithms, resulting in suboptimal prediction accuracy. To address these problems, this study presents a model that uses accounting variables and firm characteristics, construction market dynamics, and macroeconomic indicators to predict the probability of failure one to two years in advance. The model uses a soft voting-based ensemble algorithm, financial ratios refined through the recursive feature elimination with cross-validation (RFECV) algorithm, and dataset balancing via Synthetic Minority Over-Sampling Technique + Tomek Link (SMOTETomek). The comparison results indicate that the predictive performance of the soft voting ensemble model outperforms all single classifiers across all combinations of input variables and prediction years. Additionally, incorporating non-financial variables, such as firm characteristics, construction market dynamics, and macroeconomic indicators, further enhances the model’s accuracy. The proposed model can be effectively employed to help stakeholders mitigate the risks associated with the financial distress of construction companies before the project implementation phase.

Protectionism or let go? Evidence from IT investment in Chinese manufacturing firms

ABSTRACT From a global perspective, economic and trade disputes between countries are gradually increasing. Under the influence of the COVID-19 epidemic and war, the competition among the countries has become more intense. Lower trade barrier for economic cooperation or trade protection is becoming a concerned topic for governments and researchers around the world. This study uses the IT investment data from Chinese manufacturing enterprises from 2015 to 2022 to test the impact of international competition on technological development under environmental heterogeneity. The research results show that the external environment has an important impact on the technology performance of enterprises. After the COVID-19 epidemic, the IT investment performance of enterprises shows a “productivity paradox” situation. Further research shows that reducing tariffs and introducing international competition will be conducive to the development and utilization of IT by enterprises, which is supported in different market environments. This study verified that lowering trade barriers and introducing international competition to achieve win–win cooperation is still an important method for economic and firm development.

Psychic Distance’s Impact on China’s Reverse M&A Innovation

ABSTRACT In this study, we examined Chinese firms’ cross-border reverse mergers and acquisitions (M&As). From the perspective of internal and external uncertainties, as well as the essence of psychic distance (PD), we established five dimensions of the PD of cross-border reverse M&A: cultural distance, national image, degree of internationalization, top management team (TMT)‘s overseas background, and perceived distance. Using fuzzy-set qualitative comparative analysis (fsQCA), we found that the impact of PD on innovation performance was a combination of multiple factors, showing three types of configurations: external uncertainty dominant, internal uncertainty dominant, and perceived distance dominant. We further explored the interactions between knowledge conditions, such as firm size, industry relevance, and relative knowledge scale, and PD. This study supplements and expands current theories on the internationalization of emerging market enterprises from the perspective of latecomer countries.

Impact of economic policy uncertainty on systemic risk of real enterprises: Evidence from China

This work examines the impact of economic policy uncertainty on the systemic risk of Chinese real firms from the perspectives of financing constraints and external guarantees. The findings suggest that economic policy uncertainty significantly enhances the systemic risk of real firms. The mechanism test shows that economic policy uncertainty will enhance the level of systemic risk of enterprises by exacerbating their financing constraints and expanding the scale of external guarantees. Heterogeneity analysis shows that the negative impact of economic policy uncertainty on systemic risk is more obvious in enterprises with investment and financing maturity mismatches and poorer corporate governance.

Digital transformation whitewashing and financing constraints

This study investigates the drivers and consequences of digital transformation whitewashing (DTW) among Chinese manufacturing firms from 2010 to 2021. We find that financing constraints have a robust and significant positive impact on DTW, an effect that is more pronounced for firms located in provinces with lower marketization or operating in industries with lower levels of monopoly. Regarding economic consequences, our results indicate that DTW fails to alleviate external financing constraints, instead causing firms to increasingly rely on internal financing.

The impact of patent infringement litigation decisions on firms’ innovation performance in China

The judiciary protects the value of innovation through remedies such as injunctions and damages when patent rights are infringed, adjusting the expected returns on future innovation activities for firms. Based on data from 1,062 Chinese firms involved in Patent Infringement Litigations (PILs), this study uses three-way fixed-effects Poisson panel regression models to examine the dynamic impacts of a PIL win-or-lose decision on breakthrough and incremental innovation performance for plaintiff and defendant firms. The study finds that plaintiff micro and small-sized enterprises (MSEs) can only engage in short-term breakthrough innovation after winning a PIL. Plaintiff medium and large-sized enterprises (MLEs) tend to adopt the patent defence strategy after winning, while losing a case positively impacts their breakthrough and incremental innovation. Defendant firms adopt the strategy from incremental innovation to breakthrough innovation after winning, while losing inhibits their innovation. The current Chinese patent system has an imbalance in incentivizing innovation for MSEs. Whether winning or losing, defendant MSEs participating in litigation significantly inhibit their innovation performance at different levels. This paper provides a multidimensional angle for studying the relationship between patent protection and corporate innovation.