Abstract
Considerable attention has been focused on the ways in which emerging market firms can obtain and mobilize the knowledge and resources required for innovation. Innovation is a particular challenge in emerging markets because of inadequate external institutions. In this study, we focus on the importance of ownership structure, and in particular on ownership type diversity and ownership concentration. Using transaction cost and agency theories embedded in an emerging market context, we argue that ownership structure provides an important mechanism by which firms can assemble and direct the resources necessary for innovation in the context of inadequate external institutions. Specifically, we hypothesize that ownership type diversity improves innovation performance and that increasing ownership concentration has the same effect, but only up to a point. Using a panel dataset of 487 and 475 Chinese listed companies during 2004–2005 and 2005–2006 respectively, we find supportive empirical evidence for our hypotheses. Our findings also suggest that ownership type diversity is a more important factor in explaining innovation performance than ownership concentration, although most of the extant literature focuses on the latter.
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Notes
For instance, supporting domestic firms to build indigenous innovation capabilities was emphasized in Chapter Ten of The Tenth Five-Year (2001–2005) Plan of China, Chapters Three and Seven of The Eleventh Five-Year (2006–2010) Plan of China, and Chapters Three and Seven of The Twelfth Five-Year (2011–2015) Plan of China. Full documents can be downloaded from the National Development and Reform Commission of China (NDRC) (http://www.sdpc.gov.cn/).
We note that resource dependence theory (RDT) would likely lead to similar conclusions as TC theory (Pfeffer & Salancik, 1978). The uniqueness of the resources contributed by each ownership type results in strong resource dependence. Pfeffer and Salancik (1978) suggest that in such circumstances some form of joint ownership among the three types of owners will result in order to reduce resource dependence and the resulting environmental uncertainties.
A-share listings refer to shares that are traded in Renminbi, the currency in mainland China, in contrast to B-share listings, which are traded in foreign currencies. The Appendix has a detailed description of all share types in the Chinese stock exchanges.
Market value suggests the value estimated in the goods and services markets. This information is given in the Census data.
Compared with cumulative ownership by the largest shareholders, the Herfindahl measure captures both the number of shareholders and their differences in shareholdings, and puts higher weight on larger shareholders than smaller ones (e.g., Su et al., 2007). Our Herfindahl measure is based on the five largest owners as opposed to, for instance, ten, because the ownership concentration in a Chinese listing is so high that usually only the top five owners collectively take the majority control (i.e., greater than 50 %). Indeed, the cumulative ownership percentage by the top five owners is higher than 50 % in 760 out of the total 930 (i.e., 82 %) observations in our sample. The more shareholders we include, the smaller variations we will have in ownership concentration.
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Acknowledgments
We are grateful to Editor-in-Chief Michael Carney and three anonymous reviewers for their helpful comments. We would like to thank Lisa Papania and Aidan Vining, who helped us frame some of the original ideas in this paper. We have also benefited from discussions with Michael Useem and William Judge. We thank Neeraj Sharma for research assistance and the Jack Austin Center for Asia Pacific Business Studies at SFU Beedie School of Business for financial support.
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Chen, V.Z., Li, J., Shapiro, D.M. et al. Ownership structure and innovation: An emerging market perspective. Asia Pac J Manag 31, 1–24 (2014). https://doi.org/10.1007/s10490-013-9357-5
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DOI: https://doi.org/10.1007/s10490-013-9357-5