Firm Performance In China Research Articles

Political involvement and firm performance — Chinese setting and cross-country evidence

This paper examines the effect of political involvement on firm performance in Chinese and cross-country setting. We find that political involvement is negatively correlated with firm performance in China and the negative effect in China is stronger than that in other countries. Cross-sectional tests indicate that the negative effect is not affected by cross-listing, stronger in local Stated Owned enterprises (SOEs) and disappears after the issue of Guiding opinions and Several opinions. Our additional analyses show that the degree of overlapping between members of the Party Committee and directors has a converted U-shape relationship with firm performance. The ratio of Chinese Communist Party members in the board of directors has positive impact on firm performance and political involvement is positively correlated with firm performance in NSOEs.

Dynamic study of corporate governance structure and firm performance in China

PurposeThe paper aims to provide a comprehensive investigation of the relationship between corporate governance (CG) structure and firm performance in Chinese listed firms from 2001 to 2015. The authors’ motivation derives from the fact that the CG system in China is different from those in the US, the UK, Germany, Japan and other countries.Design/methodology/approachA large unbalanced sample, covering more than 22,700 observations in Chinese listed firms, was used to explore, by means of a system-generalized method-of-moments (GMM) estimator, the relationship between CG structure and firm performance to remove potential sources of endogeneity.FindingsResults show that Chinese CG structure is endogenously determined by the CG mechanisms investigated: there is no relationship between board size (including independent directors) and firm performance; CEO duality has a significantly negative effect on firm performance; concentration of ownership has a significantly positive influence on firm performance; managerial ownership is negatively correlated with firm performance; state ownership has a significantly positive effect on firm performance; and a supervisory board is positively correlated with firm performance.Practical implicationsThe findings provide policymakers and firm managers with useful empirical guidance concerning CG in China.Originality/valueFew integrative studies have examined the impact of CG structure on firm performance in China. This study adds new empirical evidence that the relation between CG structure and performance in China is endogenous and dynamic when controlling for unobserved heterogeneity, simultaneity, and dynamic endogeneity.

The Paradox of Responsive Authoritarianism: How Civic Activism Spurs Environmental Penalties in China

Recognizing the need to better understand institutional change processes in authoritarian states, which play an increasingly prominent role in the world economy, we examine the efficacy of civic activism aimed at spurring governmental action concerning the environmental performance of firms in China. We highlight the paradox of “responsive authoritarianism” on display in China: to avoid needing to rule by coercion alone, the government seeks citizens’ feedback and tolerates pressures for change, but at the same time it resists the associated legitimacy threats regarding its capacity to rule. Local governments and the media play crucial and dual roles in this system: they mitigate change pressures from civic activism that takes place within the state’s systems, but they magnify change pressures from publicly visible civic activism occurring outside those systems. We test our conceptual model using a unique data set of environmental penalties imposed on Chinese publicly listed firms from 2007 to 2011. Our findings contribute to understanding processes of institutional change and outcomes of social movements. The online appendix is available at https://doi.org/10.1287/orsc.2018.1212 .

The impact of analyst coverage on partial acquisitions: Evidence from M&A premium and firm performance in China

In this paper, we examine how analyst coverage affects mergers and acquisitions in China. By using partial acquisitions in our study, we are able to directly examine the post-acquisition performance of the targets. Our results are robust and consistent with our hypotheses. Analyst coverage can effectively reduce information asymmetry. As a result, targets with high analyst coverage experience more immediate and accurate price correction in the short run, as indicated in the acquisition premium. In the long run, targets with high analyst coverage outperform targets with low analyst coverage up to two years post acquisition, based on EPS. Our results indicate analyst coverage can effectively (1) speed up price discovery by bringing targets' stock prices closer to their equilibria, (2) promote market efficiency by reducing information asymmetry, (3) help acquirers make better asset allocation and investment decisions in the acquisition market by reducing information asymmetry, and (4) support targets' long-term performance by providing them with better access to external resources.

Product Diversification and Firm Performance in China: A Perspective of Sub-National Institutions

Research related to the effect of product diversification on firm performance (PD- P, hereafter) in China has not yet paid attention to the heterogeneity of sub- national institutions in various re...

Non‐controlling Large Shareholders and Firm Performance in China

AbstractThis paper examines the determination of non‐controlling large shareholders (NCLSs) on firm performance and investigates the impacts of NCLSs on tunneling and investment efficiency. We use three attributes of NCLSs (ownership, identity, and relational board/management representation) to fully capture the governance effects of NCLSs. We find robust evidence that NCLSs are associated with higher firm performance. Furthermore, we also document that NCLSs promote investment efficiency. However, except for individual investors, the other items in NCLSs deteriorate tunneling. Additionally, except for mutual funds, we find that the other governance effects of NCLSs are stable under different circumstances.

Top managers' managerial ties, supply chain integration, and firm performance in China: A social capital perspective

Firms are attempting to integrate with their supply chain partners to achieve superior firm performance. This study draws on social capital theory and supply chain literature to investigate how top managers' managerial ties influence supply chain integration, which consequently improves firm performance. This study further examines how the relationship between top managers' managerial ties and supply chain integration is moderated by market turbulence. By using triple-respondent, matched data of 176 Chinese manufacturing firms, we find that top managers' business ties are positively related to supply chain integration, whereas their political ties are not. Supplier and customer integration contribute to firm performance. Furthermore, market turbulence negatively moderates the business ties–supply chain integration relationship, but it positively moderates the political ties–supply chain integration linkage.

The effect of corporate culture on firm performance: Evidence from China

This study examines whether corporate culture promotion affects firm performance in China in terms of firm market value, firm financial performance and innovation output. We find consistent evidence that corporate culture promotion is negatively related to firm market value, positively related to innovation output and not significantly related to firm financial performance. In addition, the negative effect of corporate culture promotion on firm market value is driven by small firms and firms located in less developed provinces. Furthermore, we find that some specific corporate culture promotions, such as innovation culture promotion and integrity culture promotion, are not related to firm value or financial performance. However, innovation culture promotion is positively associated with innovation output.

Good neighbors, bad neighbors: local knowledge spillovers, regional institutions and firm performance in China

Recent evolutionary economic geography studies have stressed technological relatedness as a key explanatory factor for regional industrial diversification. It is further argued that firms that manufacture products with dense connections to regional industrial structure benefit the most from local knowledge spillovers and thus should grow faster. Based on a firm-level dataset on China’s manufacturing industry over the 1998–2008 period, our results indicate that the density of links between a firm’s products and local industrial structure does yield firm performance enhancing spillovers. We further decompose the overall density indicator and point out the lack of connections between firms of different ownership types in terms of information exchange and technological diffusion. Finally, empirical results confirm that regional institutions play a critical role in the spillover diffusion between firms of different ownership structures.

The Effects of Institutional Holdings and State Ownership on Hotel Firm Performance in China

ABSTRACTThis article examines the effects of institutional holdings and state ownership on hotel firm performance in China by employing panel regression analysis. The results show that institutional holdings as a whole and domestic institutional holdings have different effects on the performance of Chinese hotel firms. There is an inverted U-shaped relationship between institutional holdings/domestic institutional holdings and hotel performance measured by Tobin’s Q, and an upright U-shaped relationship between domestic institutional holdings and return on assets/return on equity. However, the level of foreign institutional holdings was found to have no significant impact on hotel firm performance in China. Finally, state ownership has a negative impact on Tobin’s Q. Implications for the Chinese hotel industry are discussed.

Mixed Ownership Structures and Firm Performance in China Listed Firms

China has achieved impressive economic growth since market reforms. The design of appropriate compensation structures is imperative so as to incentivize top managers, but little research has been done to examine the top management compensation structure in China. This study investigates how listed firms in China relate executive compensation to their firm performance and how such relationships are influenced by firm ownership structure. The results provide evidence showing strong link between compensation and performance varies across firms with different ownership structure. Private ownership enhances the link between firm performance and top CEOs compensation, while government ownership weakens executive pay-performance relation and thus makes the firms less effective in solving the agency problem between shareholders and management. It suggests enterprise reform in China will need to be supplemented by change in ownership structure in order to ensure fully success by transforming its State Owned Enterprises (SOEs) to corporations in the direction of converting state shares to public shares.

A Study on the Change of Human Resources and the Performance of Korean Manufacturing Firms in China

A Study on the Change of Human Resources and the Performance of Korean Manufacturing Firms in China

Ownership structure, corporate governance and investment efficiency of Chinese listed firms

PurposeThis paper aims to examine whether and how ownership structure and corporate governance have bearings on the investment efficiency of Chinese listed firms.Design/methodology/approachThe authors measure the investment efficiency by following the work of Richardson (2006) and classify listed firms into two categories: state-owned enterprises (SOEs) and private firms. OLS regressions with both industry and year fixed effects are used to investigate the effect of ownership structure and governance mechanisms on the listed firms’ investment efficiency.FindingsThe authors find that ownership concentration has a negative impact on investment efficiency, and this effect is more pronounced in SOEs than in private firms. In addition, adoption of incentive-based compensation helps improve investment efficiency. Compared with other types of institutional investors, mutual funds are more likely to exert a positive effect on the investment efficiency of investee companies.Originality/valueThis paper examines the monitoring effect of governance mechanisms in China from a new perspective, which is the investment efficiency. Furthermore, previous studies provide minimal evidence indicating any effect of incentive-based compensation on firm performance in China. This study provides empirical evidence on this effect by using incentive-based compensation (whether CEOs have been granted stock options) as an explanatory variable in the regression models.

Determinants of firm-level domestic sales and exports with spillovers: Evidence from China

This paper studies the determinants of firm-level revenues, as a measure of the performance of firms in China’s domestic and export markets. The analysis of the determinants of the aforementioned outcomes calls for a mixed linear–nonlinear econometric approach. The paper proposes specifying a system of equations which is inspired by Basmann’s work and recent theoretical work in international economics and conducts comparative static analyses regarding the role of exogenous shocks to the system to flesh out the relative importance of transmissions across outcomes.

Economic Openness and Institutional Embeddedness: Global Capital and Firm Performance in China's Stock Market*

ObjectivesThis study advances the theoretical perspective in studying economic globalization that emphasizes the moderating role of local institutions on the potential benefits brought by foreign investments on host nations.MethodsWe use mixed‐effects regression models to analyze a longitudinal data set of China's publicly listed firms between 1996 and 2012, examining how foreign share affects firm performance independently and how domestic ownerships moderate foreign share's effects on firm profitability.ResultsOur results show partial evidence for the positive role of foreign ownership on firm performance. We find that private share positively moderates the effects of foreign share on firm profitability whereas state share plays a negative moderating role. As a progressive state ownership, state institutional share appears to cooperate with foreign share more effectively than state share.ConclusionWe suggest that the global‐local partnership plays a critical role in assessing the consequences of foreign capital on local firm outcomes.

Do Share Issue Privatizations Really Improve Firm Performance in China?

We document significant post-share issue privatization (SIP) increases in profitability of divested Chinese state-owned companies, once the negative IPO listing effect is accounted for. This contradicts previous studies showing that profitability declines after privatization. We employ a triple difference approach and examine 204 Chinese SIPs from 1999-2009 matched with otherwise comparable state-owned enterprises and privately-owned firms. We document a negative listing effect since the ROS EBIT/Sales of privately-owned firms decline significantly after going public. After adjusting for this negative listing effect, we show that SIPs yield significantly improved profitability, and find this result is highly robust to alternative specifications.

Business Cycles, Political Connectedness, and Firm Performance in China

In this paper I examine the impact of firms’ political connectedness on firm performance in private listed Chinese firms in the manufacturing sector, exploiting a policy shock, that is, the 4-trillion-yuan ($586-billion) economic stimulus plan in 2009 in response to the 2008 financial crisis. I use the difference-in-difference (DID) method to estimate the impact of political connectedness, comparing the change of firm performance in association with the stimulus between politically connected firms and non-connected ones. I find that political connectedness, particularly executives or directors being political delegates, enable firms to have better access to bank credit but have no direct impact on firm sales. Moreover, the two types of political connectedness, being political delegates or former officials, have different impact on firm profitability.

Ethnic diversity and firm performance: Evidence from China’s materials and industrial sectors

Several studies examine the determinants of firm performance in China, but none explores the impact of ethnic diversity on firm performance. This study examines the relationship between ethnic diversity and firm performance in China by drawing on province-level indices of ethnic fractionalization and firm-level indicators of financial performance. We analyse a sample of 1079 Chinese firms in the materials and industrial sectors and find that higher ethnic heterogeneity negatively impacts on firm financial performance in these sectors. This implies that ethnic composition can explain observed divergence in firm performance of Chinese firms and that low-growth firms can gain economic benefits by minimizing ethnic heterogeneity among its workers.

Low carbon supply chain firm integration and firm performance in China

Based on the natural resource-based view (NRBV), this paper analyzes the relationship between internal low carbon integration and external low carbon integration and firm performance, as well as the moderating role of quality management within low carbon supply chain, by researching 12 business departments of machinery, electronic, and transportation components industries in China. The results of this empirical study show that internal low carbon integration helps to improve firm's environmental performance, while hinder firm's financial performance. External low carbon integration improves both environmental performance and financial performance. In the meanwhile, quality management strengthens positive relationships that found in this study and weakens the negative relationship between internal low carbon integration and financial performance.

It's Not Just a Visit: Receiving Government Officials’ Visits and Firm Performance in China

ABSTRACTDrawing upon signaling theory, we propose that a specific form of non-market action, receiving government officials’ visits, reduces transaction costs between firms and their potential exchange partners and thus contributes to firms’ competitive advantage in China. We also contend that severity of information asymmetry and availability of alternative ways of reducing transaction costs moderate the relationship between receiving government officials’ visits and company financial performance in opposite directions. The former factor increases the ex ante value of receiving government officials’ visits and strengthens its positive impact on financial performance, while the latter factor decreases the ex post value of receiving government officials’ visits and reduces its positive impact. Our conceptual framework is supported by analyses that draw on a sample of listed manufacturing firms in China. Our study contributes to a more in-depth understanding of non-market actions in emerging economies, their contingencies, and their performance implications.