Unfolding China’s state-owned corporate empires and mitigating agency hazards: Effects of foreign investments and innovativeness

Zhu, JianJun (John), Caleb H. Tse and Xu Li

Journal of World Business, 2019, vol. 54, issue 3, 191-212

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.

Keywords: Empire building; Agency hazards; Institutional theory; State-ownership; Innovativeness; Foreign capital (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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DOI: 10.1016/j.jwb.2019.02.001

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