China and the Global Business Revolution

Impact of state ownership and control mechanisms on the performance of group affiliated companies in China

“…Fan, Wong, & Zhang, 2005;Li, Sun, & Liu, 2006). As Nolan (2001) observed, Chinese business groups were characterized by consisting of 'a large powerful "parent" or "core" company, otherwise known as a "group company", surrounded by other "children" companies in which the mother holds a controlling share. This is known as the "close" layer of the group.…”

“…These relations enable group-affiliated companies to avoid the uncertainties and/or opportunistic behavior caused by change in external institutions or weak trust in a given society (Granovetter, 1994;Guthrie, 1997;Keister, 1998;Orrù, Biggart, & Hamilton, 1991). Fourth, A political-economic approach has noted the business groups can be used as organizational devices by governments to achieve political, social, and economic objectives, such as to lead a nation's economic development, to increase in local employment, and to take over a nation's strategic or pillar industries (Nolan, 2001). At the same time, as a political-economic approach argued, business groups can enjoy governmental supports by receiving favorable conditions, such as funds, capital, licenses for specific businesses, technology, land, and information (Guthrie, 1997;Nolan, 2001).…”

“…Firms with the dominant state ownership could enjoy government support and incentives, such as favorite conditions, monopolistic positions, or strategic resources, such as capital, business licenses, and information, which are critical to implement diversification strategies. For instance, Nolan's (2001) case studies vividly described how Chinese large business groups, as the national team members for the country's economic development, were backed up by governments in their foundation and development.…”

“…Some found a negative impact of state ownership on firm performance in business groups due to the soft budget constraints and administrative intervention imposed by governments (Nolan, 2001;Yiu et al, 2005). Others found that managers in large business groups could enjoy more autonomy in their decision making in particularly when they diversified through group pyramid ownership structures because companies at the bottom of the pyramid structure were kept at an arm's length from the state or governmental control (Fan et al, 2005).…”

“…On the other hand, large business groups, which were regarded as members of 'national teams' in national and local economic development in the PRC (Nolan, 2001), enjoyed governmental support and provision of strategic critical resources, such as the access to bank, loans, capital, opportunities of being listed in stock markets, land, business licenses, technology, and others, such as foreign trading, which still required governmental approval. As a result, affiliated companies with the dominant state ownership could build and develop slacks of resources and therefore became more diversified (Guthrie, 1997;Keister, 1998Keister, , 2000Peng, 2002;Peng, Lee, & Wang, 2005;Tan & Peng, 2003).…”