What factors determine innovation performance in emerging economies? Evidence from China

Although the literatures on international trade, FDI and R&D have assisted significantly in improving our understanding regarding the determinants of innovation performance, there has been little research concerning the way in which each informs the other. Integrating theoretical developments from all three literatures, we propose and test a multidimensional conceptual framework that allows us to explain more fully what determines innovation performance in emerging economies. Testing the framework against a recently constructed industry-level dataset for China, the empirical analysis indicates that it has significant power in explaining variations in innovation performance. Nevertheless, our findings also show that factors such as international trade, FDI and R&D do not always have positive consequences. Rather, they indicate that their effects are moderated by technological opportunities and the level of foreign presence, implying that previous mixed findings regarding the role of international trade, FDI and R&D may be the result of incomplete theorizing about the factors that moderate the relationship between innovation performance and these factors.     

Can returnee managers promote CSR performance? Evidence from China

With growing economic globalization, returnee managers who have obtained education or work experience overseas play a much more crucial role in corporations, especially in emerging economies. Using hand-collected managerial background data from a sample of firms listed on the Shanghai and Shenzhen Stock Exchanges from 2010 to 2014, this paper investigates the impact of returnee managers on corporate social responsibility (CSR) performance. We find that returnee managers can promote CSR performance. Further analyses show that the impact of returnee managers on CSR is more pronounced when managers have a foreign study background compared to managers with foreign work experience. The impact only holds when managers obtained their experience in developed economies. When enterprises face greater information asymmetry, returnee managers are more willing to use CSR as a tool to convey a positive image to stakeholders. CSR can help managers reduce information asymmetry and improve firm value. The results are robust through a series of robustness checks including a propensity score matching (PSM) procedure and a Heckman two-state sample selection model. This paper contributes to growing studies on the economic consequences of returnee managers and advances our understanding of the determinants of CSR at the individual level. The results also have implications for government and enterprises attracting talents with overseas experience.     

Can professional skepticism be learned? Evidence from China

The purpose of the present study was to explore whether professional skepticism can be learned in a classroom setting, an issue that has received scant attention in the prior literature. A questionnaire was administered to students enrolled either in the accounting program or in the business administration program of a large college in China. The author finds that participation in ethics education is positively related to students’ professional skepticism, whereas participation in auditing education is not related to accounting students’ professional skepticism. The author also finds that accounting and nonaccounting business students exhibit no significant difference in their scores of professional skepticism.     

What determines Chinese outward FDI?

Chinese outward foreign direct investment (FDI) has increased substantially in recent years. Though this has generated considerable interest in the motivations and drivers of Chinese investment abroad, there have been few systematic empirical studies of these questions. This paper performs an econometric analysis of the host country determinants of Chinese outward FDI in the period 2003-2006. We find that Chinese outward FDI is attracted to large markets, and to countries with a combination of large natural resources and poor institutions. Disaggregation shows that the former effect is related to OECD countries, whereas the latter interaction effect holds for non-OECD countries.     

Do Auditors Applaud Corporate Environmental Performance? Evidence from China

This paper examines the relationship between turnover among chief executive officers (CEOs) and corporate sustainability performance (CSP) by identifying the influence of two major types of succession to the top job (internal or external promotion) and the reasons for change. Our model also integrates the firm’s past prioritization of CSP and the impact of a company’s participation in the Global Reporting Initiative (GRI). Upper echelons theory and agency theory frameworks are adopted to understand CSP. Using an analysis of panel data for 88 public companies across 13 years in France, we find that a change of chief executive has a positive and significant effect on CSP 5 years after the change. This positive effect is stronger when the new CEO is recruited from outside the firm. The impact on CSP is invariably positive and significant, except for voluntary departures. The arrival of a new CEO affects CSP less when the firm has already achieved a high standard of CSP and participates in the GRI. These results are obtained after controlling CSP determinants already validated in the literature (financial performance, size, profitability, etc.). The findings show that expectations of CEOs are not solely economic and financial but also concern CSP. In terms of governance, they should prompt shareholders looking to strengthen CSP to choose new CEOs from outside the firm and to encourage the firm to participate in the GRI.     

Does ownership type matter for innovation? Evidence from China

According to the institution-based view, ownership type is a key variable affecting environment-strategy configurations. This study configures the mechanism in which ownership types (as an institutional factor) moderate the effect of innovation strategies on firms' innovation performance. An empirical analysis was conducted on Chinese hi-tech manufacturing firms, using information related to the innovation activities of 303 firms. The empirical results suggest that ownership type affects the positive relationship between three sources of innovation (internal R&D activities, partnering with alliance partners, and partnering with universities) and innovation performance, as well as the negative relationship between external contracting and innovation performance (product or process innovation). The results imply that organizations doing business in China must be aware of the business environment that they intend to enter, especially if the intention is to develop new products or innovate current business processes.     

Do Returnee Executives Value Corporate Philanthropy? Evidence from China

Journal of Business Ethics - The initial online publication contained a typesetting mistake. The original article has been corrected.     

What holds back high-growth firms? Evidence from UK SMEs

High-growth firms are seen as vital for economic growth. It is important for policy and theory to consider the barriers faced by firms achieving high growth and those with the potential to do so. This article uses data for 4,858 UK SMEs to investigate the obstacles perceived by two sets of firms: (1) firms in periods of high growth and (2) potential high-growth firms, which are observationally similar but are not achieving high growth. The results suggest high-growth firms perceive problems in six areas: recruitment, skill shortages, obtaining finance, cash flow, management skills and finding suitable premises. Potential high-growth firms feel held back by the economy, obtaining finance, cash flow and their management skills, but are less likely to perceive regulation is a problem. The results have implications for theory on high-growth firms and policies focussed at them.     

Do Lenders Value Corporate Social Responsibility? Evidence from China

Drawing on risk mitigation theory, this article examines whether the improvement of firms’ social performance reduces debt financing costs (CDFs) in China, the world’s largest emerging market. Employing both the ordinary least square (OLS) and the two-stage instrumental variable regression methods, we find that improved corporate social responsibility (CSR) reduces the CDF when firms’ CSR investment is lower than an optimal level; however, this relationship is reversed after the CSR investment exceeds the optimal level. Firms with extremely low or extremely high CSR are subject to a higher CDF. The results also suggest that the optimal CSR level for small firms is higher than that for large firms. This study is the first to document a U-shaped relationship between CSR and CDF and also the first to investigate this relationship within an emerging market context.     

What Can Third World Countries Learn from China?

Market socialism is a new hybrid among economic systems. Applied in an ad hoc fashion in Hungary, the huge-scale economic experimentation in the People's Republic of China, if allowed to continue, will first put to the test the basic concept of an open market within an economy of essentially publicly owned means of production. While each country should presumably adopt systems suited to local culture and resources, the PRC experience seems to offer Third World nations many worthwhile ideas.     

Is Leader Charisma Individual-Centered or Relationship-Centered? Empirical Evidence from China

Despite the multitude of research on charisma of leaders, researchers have failed to reach a consensus on its nature. The main debate is whether charisma resides innately within a leader or it is developed from specific relationships. This paper elucidates this issue using empirical studies from China. Combining qualitative investigations and exploratory factor analysis, we find that leader charisma consists of three dimensions: love towards followers, talents and wisdom of leadership, and public virtue. The three-factor structure of charisma suggests that a leader’s charisma on the surface originates from leader’s personality and behavior but it can actually only be fully understood by integrating the relationship-centered view of charisma.     

Does Religion Matter to Owner-Manager Agency Costs? Evidence from China

In China, Buddhism and Taoism are two major religions. Using a sample of 10,363 firm-year observations from the Chinese stock market for the period of 2001–2010, I provide strong and robust evidence that religion (i.e., Buddhism and Taoism on the whole) is significantly negatively associated with owner-manager agency costs. In particular, using firm-level religion data measured by the number of religious sites within a radius of certain distance around a listed firm’s registered address, I find that religion is significantly negatively (positively) associated with expense ratio (asset utilization ratio), the positive (reverse) proxy for owner-manager agency costs. This finding is consistent with the following view: religiosity has remarkable effects on the way how an individual thinks and behaves, and thereof can curb managers from unethical business practices. Moreover, my findings suggest that the negative association between religion and owner-manager agency costs is attenuated for firms with strong external monitoring mechanisms such as higher Marketization and high-quality auditors. Furthermore, after separating Buddhism from Taoism, my finding indicates that above conclusions are only available for Buddhism, suggesting that different religions may have asymmetric influence on owner-manager agency costs. Above results are robust to various measures of religiosity and a variety of robustness checks.     

Do mergers and acquisitions promote trade? Evidence from China

Many studies have shown that mergers and acquisitions (M&A) raise firms' productivity. Few researches investigate whether exporters can enhance export performance after M&A through higher levels of efficiency. Based on detailed information on M&A activities of Chinese firms, China's customs trade data and National Bureau of Statistics surveys, we investigate the causal effect of M&A on trade performance. In particular, the value and the volume of firm exports, product quality, product scope and the number of export destinations have been examined. We find positive and significant effects of M&A on all the examined indicators of export performance. These findings are generally robust to a variety of robustness checks. We further observe that state-owned firms are the least likely to benefit from M&A. We also obtain evidence that firms benefit more from M&A deals if they are targets or merge with foreign firms. Overall, this paper is to our knowledge the first study that uses micro-level data in multiple industries to examine the relationship between M&A and exports of heterogeneous firms. Our results deepen our understanding of the consequences of M&A by suggesting another potential benefit, and hence provide policy implications for merger regulation.     

Will auditors charge more for corporate philanthropy? Evidence from China

This study examines the relationship between corporate philanthropy (CP) and audit fees. Using corporate donation data from China, our investigation finds that CP is significantly positively associated with audit fees. Resource-seeking purpose and the enhanced publicity effect may be plausible channels behind this relationship. We further find that the frequency and intensity of donations reinforce this positive association. Additional analysis reveals that the resource-seeking effect exists in any type of enterprise, while the enhanced publicity effect only exists in non-SOEs. Our main results remain robust to a battery of additional tests. Overall, our findings suggest that by increasing audit workload and prospective audit risk, CP could make auditors more conservative such that they charge a higher audit fee. This article emphasizes the dialectic institutional stakeholder perspective in understanding the economic consequences of CP. Both the theoretical contributions and practical implications of these findings are discussed.     

Does corporate internationalization affect corporate social responsibility? Evidence from China

Based on manually collected data, we investigate the effects of internationalization on corporate social responsibility (CSR) in Chinese firms. We find that the internationalization is positively related to CSR scores. The results are robust when we address the endogeneity, and use alternative measurements of the dependent and independent variables. Furthermore, we find internationalization significantly improves the CSR performance when the quality of the host country's institutional environment is better and the firms are state-owned enterprises, business-to-consumer firms, and operate in socially sensitive industries. This indicates that legitimacy is the main motive for Chinese multinational companies to engage in more CSR.     

Can Accounting Earnings Predict Future GDP Growth? Evidence from China

This study investigates whether accounting earnings can predict future Gross Domestic Product (GDP) growth within China’s institutional settings. Konchitchki and Patatoukas (2014a) find that accounting earnings is a significant leading indicator of GDP growth for the next three or four quarters. We conjecture, however, that earnings management would weaken such predictive power for accounting earnings because it distorts earnings from real corporate profit. As earnings of Chinese firms are more seriously manipulated than those of US firms, this study finds that earnings of Chinese listed firms can only predict GDP growth for a single quarter. We further decompose accounting earnings into operating cash flow and accrual earnings and find that operating cash flow which is less affected by earnings management has better predictive power for GDP over the longer horizon of the next three quarters, but accrual earnings can only predict GDP growth for the next quarter.     

Does air pollution influence investor trading behavior? Evidence from China

Building on the research linking environmental factors to investor mood, we posit that there is a negative relation between air pollution and individual trading strategies. Through an analysis of unique individual transaction data, our results show that air pollution negatively influences individual investors' propensity to buy and positively influences investors' propensity to sell. We find obvious heterogeneity effects across different investor, stock and city characteristics. The effects are even larger for investors with less investment experience and for those living in heavily polluted cities. This study is crucial for establishing an association between air pollution and individual trading activities.