Private Firms Research Articles

Political governance and corporate investment efficiency in China

ABSTRACT The involvement of the Communist Party of China (CPC) in corporate decision-making has formed a governance model with ‘Chinese characteristics’ that diverges from commonly studied governance models. This paper provides direct insight into China’s political governance model by examining how the Party organization influences the investment efficiency of private firms. We find that increasing the proportion of Party directors (i.e. stronger political governance) improves the investment efficiency of private firms. This finding survives various robustness checks. The mediation analysis suggests that Party organizations promote corporate investment efficiency by playing advisory and supervisory roles in corporate governance. One policy implication is that, from the perspective of improving investment efficiency, the CPC should encourage private firms to invite more Party organization members to the board of directors, supervisory board, or management.

Analysing firm-level impacts of high-speed railways on reducing business costs: evidence from China

ABSTRACT Numerous studies have revealed that high-speed railways (HSRs) can efficiently reduce transportation costs for firms and therefore bring more business capacities to firms in regions with HSR services. This paper aims to adopt the difference-in-difference (DID) and PSM (propensity score matching) DID methods to examine the HSR’s causal effects on business costs. The author finds that business costs are significantly reduced due to the operation of HSR lines. Besides, private firms and firms in the secondary and tertiary sectors would experience more reductions of business costs encouraged by the HSR than state-owned and agricultural firms. The placebo test and parallel trend test have proved the feasibility of this study. Finally, this paper provides policy suggestions that the construction of HSR lines needs to be encouraged in order to promote the higher efficiency of business operations for firms and more-balanced spatial business developments in China.

The study of firm productivity with green credit policies: evidence from Chinese industrial firms

We use the 2012 Green Credit Guidelines as a quasi-natural experiment and data from A-share listed companies from 2008–2020 to examine the effect of green credit policy on firm productivity and its mechanism of action. The results show that the green credit policy significantly inhibits improvements in firm productivity. The inhibitory effect still holds after a series of robustness tests, such as the difference-in-differences propensity score matching method, placebo test, and change in the timing of policy shocks. The mechanism of action test reveals that credit resource allocation, financing constraints and business credit are important channels through which green credit policy can reduce firm productivity. The heterogeneity test reveals that the inhibitory effect of green credit policy on firms’ productivity improvements in restrictive industries is more significant for private firms, smaller firms, and inland regions. The policy implication of the findings of this paper is mainly to improve the green credit policy guarantee mechanism and policy implementation using the market as the main body, with the goal of realizing the synergistic development of policy implementation and environmental protection and of promoting rational resource allocation.

Does negative environmental performance feedback induce substantive green innovation? The moderating roles of external regulations and internal incentive

AbstractWhen the environmental performance is below the aspiration, will firms make substantive changes? In order to answer this question, based on the behavioral theory of the firm, this paper examines the impact of negative environmental performance feedback on substantive green innovation (GI) and its influencing mechanism. It is found that the negative environmental performance feedback induces substantive GI, which is positively moderated by external regulations (i.e., government environmental regulation and public environmental concern) and internal incentive (i.e., executive equity incentive). Media pressure and risk preference act as mediators in the above promotion effect. Heterogeneity analysis shows that the above promotion effect as well as the moderating effects of external regulations are more pronounced in private firms, while the moderating effect of internal incentive is more pronounced in state‐owned firms. Furthermore, the above promotion and moderating effects are more pronounced after the ESG rating event of SynTao Green Finance Agency. This paper offers new sights into understanding the motives of substantive GI and policy suggestion for promoting firms to achieve sustainable development.

Major government customers and organizational resilience during the COVID-19 pandemic: evidence from China

ABSTRACT The COVID-19 pandemic disrupted global supply chains and threatened firm survival. By analysing Chinese listed private firms from 2017 to 2022, we examine the impact of government customers on organizational resilience during this crisis and find that firms with major government customers demonstrate higher resilience than those without. Moreover, government customers support private suppliers by providing additional trade credit and reducing demand uncertainty. This support substitutes for specific internal resources in assisting private suppliers during the pandemic. Finally, the effect is amplified when government customers are affiliated with higher-level governments.

The role of public workforce diversity and the administrative ecosystem in advancing digital public service innovation

ABSTRACT Organizational studies have long built a ‘business case’ for diversity, which today includes innovation capacity among the benefits of diverse workforces. Diversity’s impact on innovation has been tested in private firms, yet few systematic studies exist in public management. We address this challenge using a two-step dynamic panel data analysis via generalized methods of moment estimation in 36 European countries. The findings confirm that higher public workforce diversity leads to higher public service innovation. This effect, however, is mediated by the administrative ecosystem, where greater uniformity in managerial practices makes diversity more salient, an obstacle to unleash its innovative potential.

Do private firms invest more in environmental protection under political control? Evidence from China

For the first time, this study investigates the environmental performance outcomes of integrating local political committees into private firms. Using a nationwide survey of Chinese private firms, we find that the involvement of local party committees significantly bolsters corporate environmental investment. This finding remains consistent across various samples, alternative measures of the dependent variable, and different estimation methodologies. Notably, the influence of local party committees on pro-environmental practices is more pronounced in firms with lower family ownership, in regions with weaker environmental regulations, and where the owner is also the Party secretary. This study reveals local party committees as key mediators between government and firms, enhancing corporate engagement in environmental initiatives. It advocates for policies promoting collaboration between government and private firms, particularly emphasizing the strategic placement of party committees in firms with specific ownership and leadership characteristics to maximize environmental investment.

Digital transformation and corporate labor investment efficiency

This study investigates whether and how digital transformation affects corporate labor investment efficiency. Based on a sample of Chinese listed firms from 2008 to 2020, this paper finds that digital transformation increases corporate labor investment efficiency. Our results still hold after using a series of robustness checks. Mechanism tests show that reducing agency problems and mitigating financing restrictions are potential channels through which digital transformation improves corporate labor investment efficiency. Further analyses reveal that digital transformation reduces both overinvestment and underinvestment in labor. Distinguishing different digital technologies, we find that artificial intelligence, big data, cloud computing technology, as well as digital technology applications improve corporate labor investment efficiency, while the impact of blockchain technology is insignificant. In addition, digital transformation's positive effect on corporate labor investment efficiency is more pronounced for firms in non-labor-intensive industries, private firms, and those with more highly skilled labor. Overall, this study deepens our understanding of digital transformation's governance role in improving corporate labor investment efficiency.

The effect of the new revenue recognition principle (IFRS 15) on financial statement comparability: Evidence from Korea

This study investigates the initial impact of International Financial Reporting Standards (IFRS) 15 by comparing the financial statement comparability of the effective years of its implementation with those of the pre-IFRS 15 periods. Given that private firms are exempt from the IFRS 15 amendment, we use them as the control group for public firms. Specifically, we use Korean firms from 2015 to 2020 and employ a difference-in-differences approach. This study finds an increase in financial statement comparability for public firms after the IFRS 15 application relative to the change of private firms that are not subject to the IFRS 15. We interpret that the enhancement in financial statement comparability is caused by the following two aspects of IFRS 15: discretion reduction effect and harmonization of multiple standards effect. Furthermore, an increase in comparability is greater for firms that are clients of industry-specialist auditors and those that operate in less-competitive industries, unlike their counterparts. We also find that discretionary revenues are lower in the post-IFRS 15 period than in the pre-IFRS 15 period. Overall, the results of this study suggest that IFRS 15 can deliver the outcomes aimed for by regulators, at least during its initial implementation.

Unveiling the Good and Evil of Organisational Power: An Empirical Study

This research seeks to investigate the “relational side’s role” of Organisational Power in mitigating that of the “role power” in private firms under the lens of gender dynamics.
 
 Employing a sample of service firm workers, a regression analysis is conducted to investigate the role of Reference and Experience, framed as Personal Power because of their relational nature, in mitigating the impact of Coercive power (Positional Power) and the gender-based dynamics occurring between them. From a theoretical standpoint, this study represents an encouraging update on organisational power studies, focusing on the way different forms of power impact and coexist with each other. Furthermore, the originality of this work lies in the will of framing power relationality - understood as personal power - to overcome the exercise of power as a form derived from the role supervisors. Lastly, to contribute to gender studies on the role and predisposition of women to have a perhaps natural predisposition for forms of coercion, as they are more sensitive to relationality and to establish bonds that produce, among their superiors, forms of positive power.

Leadership Dynamics in Organizational Change: An In-Depth Exploration of Public and Private Sectors in Saudi Arabia

The study explores leadership dynamics in Saudia Arabia that have evolved organisational change focusing on public and private sectors. It examined strategies used by private firms focused on innovation and employee engagement and the bureaucratic challenges public firms face. The study has adopted qualitative analysis in which several interviews were conducted through thematic analysis. The study has also applied quantitative analysis, revealing varied perceptions of organizational change among 38 participants, with the private sector being more open, effective communication moderate, and leadership styles influencing success. The analysis has explored discussing the organizational change in Saudia Arabia. The findings explored a divergence in the organizational change strategies of private and public organizations in Saudia Arabia. Motivated by innovation and employee involvement, private enterprises differ from public organisations in terms of the bureaucratic challenges they face. Leadership has a crucial part in achieving great outcomes when leaders effectively engage in mediation, dispute resolution, and emotional management of their staff. Additionally, it was discovered that leaders played an active role in effectively managing time, fostering discipline, and highlighting employee dedication, all of which contributed to the successful implementation of organizational transformation initiatives.

Does digital finance help reduce self-rationing of small and medium-sized enterprises? Evidence from China

Due to high rejection rates and the costly and time-consuming application procedures, small and medium-sized firms may be discouraged from applying for a bank loan, thus resulting in the so-called self-rationing behaviour. Using the World Bank Enterprise Survey Data collected from 2,700 privately owned firms in China during 2011–2013, we document that there exist a significant number of small and medium-sized enterprises (SMEs) which have good performance and financing needs, but are discouraged from applying for a bank loan. We theoretically and empirically show that digital finance development can alleviate the self-rationing behaviour of SMEs. The mechanism analysis shows that, from the supply side, digital finance development enhances the probability of loan approval and the proportion of private firms’ working capital financed by banks, and reduces the obstacle to access bank loans; while from the demand side, the development of digital finance improves financial inclusion and the financial literacy of firms. Our findings suggest that digital finance development improves loan efficiency and helps SMEs better access bank credits.

Punishing environmental offenders: court decisions in environmental litigation in Taiwan

ABSTRACT This study investigates court rulings in public environmental pollution litigation, analyzing the factors influencing those decisions. We test an environmental judicial outcome model that considers the offense’s seriousness and the defendants’ resources/capabilities. Using environmental case data from six major cities in Taiwan between 2000 and 2018, we find that 78.2% of defendants were found guilty, 52.9% received probation, 19.0% were fined, and 28.1% faced imprisonment. This pattern differs from Western countries where fines are more prevalent and incarcerations rare. Statistical analyses reveal that the number of environmental offenses the defendant commits influences the court verdict and sentencing decision, defendants from private firms have lower odds of being found guilty but a higher probability of being fined, and the type of legal representation plays a mixed role in court judgments. Over time, there has been an increase in guilty verdicts and stricter punishments for environmental offenders in Taiwan.

Environmental policies with the excess burden of public funds and privatisation

AbstractThis study investigates the interaction of environmental policies with the shadow cost of public funds and the efficiency of green research and development (R&D), while considering the presence of a public firm. In the policy combination of emission taxes and green R&D subsidies, we find that it has an implementable region where the shadow cost is neither high nor low, but the green R&D efficiency is high. We also demonstrate that the privatisation of public firms decreases the rates of both emission taxes and green R&D subsidies under a single policy regime. This increases (decreases) the implementable region of the policy combination of the emission tax (green subsidy) and is only implementable in the presence of a public firm. Finally, privatisation is shown to increase welfare when the shadow cost is lowest and green R&D is less efficient. These findings highlight that public ownership substitutes for environmental policies, while the shadow cost of public funds and the green R&D efficiency are critical when privatising public firms.

Still waters run deep: differences in employee empowerment between public and private sector firms in India

The different structural contexts of public and private sector firms frame the specific organizational work environment. However, public-private comparative studies have been unable to isolate how these differences influence aspects of organizational work, such as employee empowerment, with similarities and differences among key constructs. We develop a contingency view of employee empowerment, theoretically arguing and empirically demonstrating how authentic leadership with different levels of organizational politics influences employee empowerment in different contextual settings, namely public vs. private sector firms. We present evidence of a three-way interaction. We surveyed 173 senior Indian managers working in public and private sectors to measure their perceptions of empowerment, authentic leadership, and organizational politics. Employing ordinary least-square regression, we tested for simple and complex interactions. We found that authentic leadership had interactive effects on how organizational politics and public-private differences impact empowerment. The differences in the effect of authentic leadership on employee empowerment between public and private firms became more, with an increase in organizational politics.

The strategic role of owners in firm growth: Contextualizing ownership competence in private firms

AbstractResearch SummaryWe integrate the emerging literature on the strategic role of firm owners in firms' value creation with Penrosean growth theory to investigate how and under what conditions two experience‐based competences among owners—matching competence and governance competence—influence firm growth. Employing a longitudinal sample of 2509 owner‐managed German firms, we find a positive relationship between owners' experience‐based competences and firm growth. Further, we find that in family firms, the positive relationship between owners' experience‐based governance competence and firm growth is weaker and that both experience‐based competences matter more in younger firms compared with older firms. Our findings make important contributions to research on strategic ownership and Penrosean growth theory.Managerial SummaryIn our study, we show that two competences of owner–managers are important for the growth of their firms: their matching competence, which is the ability to theorize about valuable resource configurations and cognitively envision a path to implement them, and their governance competence, which is the ability to create effective governance arrangements to align incentives within a firm. Our results suggest that it is challenging for owner–managers from family firms to leverage their governance competence to achieve growth, which could potentially be resolved by instituting governance mechanisms that prevent nepotism. We also show that owner–managers' competences are particularly important in the early years of their firms when no standardized processes are in place.

Board independence, CEO tenure, and private firm performance in Nairobi, Kenya

Governing board members includes a mix of non-executive and executive members who seek the best interests of shareholders. Non-executive board members relay on independence to execute their responsibilities and enables better firms’ performance. The independent board members are vetted in by shareholders to reduce agency problems. The study aims to establish how Chief executive officer tenure influence independent board members on decision making to enhance firm performance. Agency theory and stewardship theory were utilized in the study. The explanatory research design was used 371 private firms were the sample size. Data was collected using structured questionnaires. Hierarchical multiple regression models were used to test for direct effect and moderation effect. According to the findings, board member independence is critical for monitoring the CEO and reducing principal-agent conflict, hence enhancing business performance. The independence of board members is critical for organizations to remain inventive and competitive in order to improve firm performance.

Regulatory costs of being public: Evidence from bunching estimation

We quantify the costs of major disclosure and governance regulations by exploiting a regulatory quirk: many rules trigger when a firm's public float exceeds a threshold. Consistent with firms avoiding costly regulation, we document significant bunching around three major regulatory thresholds. Estimations reveal that the three examined rules' compliance costs range from 1.2% to 1.8% of market capitalization for firms near thresholds. For a median U.S. public company, total costs amount to 4.3% of market capitalization, and at least 2.3% absent regulatory avoidance frictions. These cost estimates are robust across various extrapolation assumptions, ranging from 2.1% to 6.3% of market capitalization. Regulatory costs have a greater impact on private firms' IPO decisions than on public firms' going private decisions, but such costs only explain a small part of the decline in the number of public firms.

Innovation-driven policy and firm investment

This study examines whether and how innovation-driven policy affects investment efficiency. Taking the approval of national innovation-driven pilot city as an exogenous shock, we conduct a staggered Difference-in-Difference (DID) approach to investigate the causal effects of the innovation-driven orientation on investment efficiency in the context of China. We find that the innovation-driven policy improves firms’ investment efficiency. Further, we distinguish under-investment and over-investment companies and find that after the approval of national innovation-driven pilot city, firms are more active in reducing redundant investments than their counterparts. The maintenance investment expenditure of firms is crowded out, while the investment in innovative R&D increases significantly. Heterogeneity analysis shows that the effect on investment efficiency is particularly pronounced in private firms and low financial constrained firms.

Services Liberalization and Manufacturing Employment Polarization: Evidence from Chinese Listed Manufacturing Firms

ABSTRACT Based on the panel data of Chinese listed manufacturing firms from 2012 to 2020, this article examines the impact of services liberalization on the polarization of manufacturing employment from the perspective of workers’ skill structure. The study results show services liberalization exacerbates the polarization of manufacturing employment primarily through equipment upgrades and cost reductions in manufacturing firms, which means that services liberalization leads to an increase in the proportion of high-skilled and low-skilled workers in manufacturing and a decrease in the proportion of middle-skilled workers. The heterogeneity test notes that services liberalization has a more substantial employment effect on private firms, central and west region firms, small- and medium-sized firms, and firms in high-skilled industries. Services liberalization leads to employment polarization for private firms, firms in the west and central region, small- and medium-sized firms, large-sized firms, firms in high-skilled industries, and firms in low- and medium-skilled industries. This article has implications for the synergy between services liberalization policies and employment growth policies.