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Buffering and bridging: How firms manage the burden of celebrity

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Abstract

On the basis of the sociopolitical legitimacy perspective, we examine how firms respond to the celebrity pressure as well as the underlying mechanisms. We argue that the pressure associated with having a celebrity owner/leader will push firms to undertake activities that “bridge” with stakeholders by engaging in corporate giving while at the same time buffer against them by revealing less information through earnings management. The extent to which a firm engages in such maneuvers varies with the level of social and political pressure from stakeholders. Our hypotheses were supported by an analysis of 297 publicly listed Chinese firms whose owners had recently been included in a list of China’s richest people. The findings enhance our understanding of the sources of celebrity pressure and extend the research on celebrity and legitimacy management.

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Notes

  1. The list covered 50 individuals during 1999–2000, 100 individuals during 2001–2004, 400 in 2005, 500 in 2006, 800 in 2007, and now 1000 individuals since 2008.

  2. This research focuses on the controlling shareholders, since due to China’s weak legal and judicial institutions (Peng, 2003, 2004), the market for professional management is much underdeveloped. Controlling shareholders—most of them are family owners—prefer to retain management control to safeguard their investments. They play a significant role in determining how their firms perform throughout the organizational lifecycle (Nelson, 2003).

  3. The portfolio matching results are available on request.

  4. The descriptive statistics and correlations for the key variables using the [t-1, t + 1] and [t-3, t + 3] event windows are available on request.

  5. The result table for the first stage model is omitted here, but are available from the authors on request.

  6. The result tables are omitted here to save space, but detailed results are available from the authors on request.

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Authors and Affiliations

  1. Department of International Business and Management, Faculty of Business, University of Nottingham Ningbo China, 199 Taikang East Road, Ningbo, China

    Weiping Liu

  2. School of Business Administration, Faculty of Economics and Management, East China Normal University, Shanghai, China

    Yanling Lian

  3. Naveen Jindal School of Business, University of Texas at Dallas, Richardson, TX, USA

    Cuili Qian

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Appendix

Appendix

Measures of Discretionary Accrual

To estimate the discretionary accrual models, we follow the literature (Kothari, Leone, & Wasley, 2005) to define total accruals (TA) as the change in non-cash current assets minus the change in current liabilities excluding the current portion of long-term debt, minus depreciation and amortization, scaled by lagged total assets. We then estimate the following equation cross-sectionally each year using all firm-year observations in the same industry.

$$ {\mathrm{TA}}_{it}={\alpha}_0+{\alpha}_1\left(1/{ASSETS}_{it-1}\right)+{\alpha}_2\ \left({\Delta REV}_{it}/{ASSETS}_{it-1}\right)+{\alpha}_3\left({PPE}_{it}/{ASSETS}_{it-1}\right)+{\alpha}_4{ROA}_{it}+{\varepsilon}_{it} $$
(1)

Where TAit is the total of the firm’s discretionary accruals. Assett-1 is lagged total assets, ∆REV is the change in annual sales scaled by lagged total assets in the model. PPEit is net property, plant and equipment, and it was also scaled by lagged total assets. Using assets as the deflator can help mitigate heteroskedasticity in the residuals (Kothari, Leone, & Wasley, 2005). The model also includes current year’s ROA as a means to control for firm performance. Residuals from the annual cross-sectional industry regression model in (1) are used as discretionary accruals.

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Liu, W., Lian, Y. & Qian, C. Buffering and bridging: How firms manage the burden of celebrity. Asia Pac J Manag 39, 483–513 (2022). https://doi.org/10.1007/s10490-020-09735-9

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