Journal of International Business Studies
Firms and governments operate in broad networks in which the home government and its diplomatic service are a critical node – or a “referral point” – between firms and potential partners in foreign locations. Thus diplomatic relations between countries matter for the choice of foreign investment location. Using a network perspective, we argue that the extent to which good diplomatic relations induce firms to invest in friendly host countries depends on their political connections to home governments. Those with stronger ties to home governments can better access and leverage intergovernmental diplomatic connections, thus benefiting potentially from enhanced access to information, reduced political risks, and increased legitimacy. Such ability of politically connected firms is more useful where weak institutional impartiality in the host country inhibits neutral treatment of foreign investors. Empirically, using overseas investment location decisions by Chinese firms, we find that the types of home government ties (i.e., whether they are organizational or personal and whether those relationships are with central or local goverments) and the impartiality of host institutions are both important contingencies affecting firms’ utilization of diplomatic relations. We discuss the implications of our study to research on network theory, political ties, and internationalization of emerging market firms.
foreign location choice
CEIBS Vice President and Dean Yuan Ding gives a sneak preview of his keynote speech at the upcoming 2nd CEIBS Hong Kong Forum. He will provide tips and suggestions on how businesses can benefit from Chinese mergers and acquisitions and the general flow of capital out of the country.
International Journal of Emerging Markets
The purpose of this paper is to contribute to the literature on institutional complexity by highlighting patterns of strategic behaviors of SMEs in institutional environments undergoing large scale transitions.
The paper uses five in-depth case studies of medium-sized enterprises in the Yangtze River Delta region to study their behaviors over the 2000-2012 period during which the institutional landscape in China underwent major changes.
The authors find that when institutional complexity is high, i.e., when neither the planned economy nor the market economy logic dominates, the role of organizational filters is more pronounced. In this situation, firm-level characteristics – its revenues and profitability, its competitive position and future prospects – play a dominant role in determining the nature of the strategic decisions and actions the firm undertakes.
The findings provide a nuanced perspective on strategic behaviors under institutional complexity. The qualitative research design offers rich insights but limited generalizability.
The findings offer practical insights to SME leaders in terms of exercising caution in undertaking unrelated diversification during periods of transition from planned to market economies.
The authors apply the concepts of institutional complexity and organizational filters in a context of large scale institutional transitions to study the strategic behaviors of SMEs over a 12 year period.
Journal of Business Ethics
Social capital can serve as informal governance in weak investor-protection regimes. Using hand-collected data on entrepreneurs’ political connections and firm ownership, we construct several original measures of social capital and examine their effect on the performance of entrepreneurial firms in China after their initial public offerings. Political connections or a high percentage of external investors tend to enhance firm performance, but intragroup related-party transactions commonly lead to performance decline. These forms of social capital have a strong influence on the performance of Chinese firms, whereas formal governance variables such as board size or board independence have little effect. Although social capital may serve as an informal governance mechanism and effectively substitute for formal governance mechanisms in an emerging market, this role of social capital raises several ethical concerns, notably the development of rent-seeking and crony capitalism.
This study systematically examines the levels of disclosure (i.e. the availability of firm-specific information to those outside publicly traded firms, measured by disclosure indices) in the annual reports of firms from the Baltic states of Estonia, Latvia and Lithuania, and compares the results with a sample of Nordic firms. The Baltic and Nordic regions are members of the EU and have had the same accounting regulations and stock market structure since 2005. In order to focus on and isolate the effect of regulation change on disclosure as reliably as possible, the time period used in this paper is 2004 and 2006, i.e. one year before and one year after the mandatory adoption of the IFRS. NASDAQ OMX owns and operates (with similar trading and quotation mechanisms) the stock exchanges that list all of our sample firms. The countries in our sample also have similar corporate governance regulations and recommendations for their listed firms. These similarities enable us to analyze whether other institutional and economic related factors, i.e. remaining matters that rule, regulate and monitor firms' legal duties and the role of stock markets in an economy, and the principal societal differences in the sample countries, influence firms' disclosure practices. We find that the level of financial reporting disclosure in annual reports is lower for Baltic firms than for Nordic firms, both before and after the introduction of the EU mandated International Financial Reporting Standards (IFRS) in 2005. However, the regulated financial reporting disclosure of Estonian firms matches that of their Nordic counterparts. This outcome is in line with the early proactivity and long-range strategy of regulators in Estonia aligning Estonia's GAAP with the IAS/IFRS. Our results support the conclusion that disclosure practices are affected by factors beyond the IFRS and the similarity between the regions' market trading and quotation mechanisms. This study provides evidence that systematic and strong-enough regulatory actions influence disclosure practices. We also hope that the disclosure indices described in this paper will help managers recognize the potential and richness of financial reporting disclosure as a communication tool.