Unfolding China’s state-owned corporate empires and mitigating agency hazards: Effects of foreign investments and innovativeness |
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Authors: | JianJun Zhu Caleb H Tse Xu Li |
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Institution: | 1. College of Business, New Mexico State University, 1320 East University Avenue, Las Cruces, NM 88003, United States;2. Nanyang Business School, Nanyang Technological University, 50 Nanyang Drive, Singapore 639798;3. School of Business, University of Hong Kong, K. K. Leung Building, Pokfulam Road, Hong Kong |
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Abstract: | Integrating agency and institutional perspectives, we describe how China’s socio-political institutions create state-owned corporate empires with unique agency conflicts. We develop a framework demonstrating how economically unjustified firm expansion, i.e. empire building, mediates the relationship between state ownership and performance. We uncover the instrument in empire building and appropriate corporate governance and strategic management remedies. An empirical study on 29,638 Chinese firms evidences that (1) increased state ownership drives higher management expenses and lower firm profitability though empire building; (2) long-term debt is used to finance empire building; and (3) foreign capital investments and innovativeness can mitigate these agency conflicts. |
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Keywords: | Empire building Agency hazards Institutional theory State-ownership Innovativeness Foreign capital |
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