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An anatomy of state control in the globalization of state-owned enterprises

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Abstract

Integrating agency theory with institutional analysis in international business, we propose a state-control perspective to analyze government-control mechanisms in emerging economies’ globalization of state-owned enterprises (SOEs). We identify two types of state control that influence SOEs’ globalization decisions and the degree of globalization (DOG): state ownership control and executives’ political connections, both of which are contingent upon the home country’s evolving institutional environments. Using a two-step corporate globalization decision model and 17,272 firm – year observations of non-financial, Chinese-listed companies, we find a strong impact of both types of state control on SOEs’ globalization, although the impacts differ between the periods before and after domestic governance reform and across different globalization decision steps. The diminishing impact of executives’ political connections and the increasing impact of state ownership control on firms’ DOG demonstrate the evolving relationship between the state and the managers, as well as the dynamics of state control in globalizing SOEs.

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Notes

  1. In April 2005 (effective from 2006), the Chinese government initiated the split-share structure reform of turning non-tradable shares (owned by the government) into tradable shares (called the share-issue privatization) for all listed domestic firms. More than 1400 listed companies could “gradually” convert their non-tradable shares. Holders of non-tradable shares compensated holders of tradable shares in each individual firm for approximately 3 shares per 10 shares on average so as to make the non-tradable shares tradable. All Chinese-listed companies completed their negotiations by the end of 2008 and all of their restricted shares became fully tradable by the end of 2011.

  2. This is confirmed by our interviews with several SOE managers (the interview transcripts are available upon request). See also the recent special report by The Economist on World Economy: The gated globe. “Capital: Just in case” (12 October 2013: 10–12).

  3. We exclude Chinese firms listed in Hong Kong abroad as they are subject to a different institutional environment and regulations.

  4. A-share refers to the stocks being valued in RMB and available only to Chinese citizens. These are in contrast to B-share stocks that are denominated in RMB but traded in such foreign currencies such as the US or Hong Kong dollar.

  5. We endeavor to coordinate different data sets in a consistent way since we have drawn on a variety of sources. More specifically, our unit of analysis is on the firm level and the firm’s managerial backgrounds (each firm usually only has one general manager) are matched with the firm’s characteristics. Macro-level data such as the province dummies and provincial-inward FDI are matched with firm-level data and are taken with a natural logarithm to smooth out extreme values.

  6. We generate a dummy variable indicating whether or not the observation belongs to the post-reform sample, and an interaction term between this dummy variable and the “manager political” variable. We then test whether the coefficients of these variables are jointly zero. The F-test rejects the null hypothesis that they are jointly zero, implying that the coefficients of “manager political” during the pre-reform and post-reform samples are statistically significantly different.

  7. Many firms in Brazil, Russia, India, and China sometimes use a third country such as Cyprus, Mauritius, Hong Kong, and the British Virgin Islands to overcome the regulation burdens of capital control in globalization (Hoskisson et al., 2013). However, SOEs, with states’ blessings, may have relatively limited burdens in capital control, according to World Investment Report (UNCTAD, 2011: 31), “the number and proportion of SOEs that have become transnational is relatively small.” For example, only 32 out of over 900 SOEs are MNCs in France that have invested abroad (UNCTAD, 2011, 2013), suggesting that SOEs could be highly selected in the first step of a globalization decision.

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Acknowledgements

Bing Ren thanks The Program for Changjiang Scholars and Innovative Research Team in University (PCSIRT) (Program code: IRT0926), The China National Natural Science Foundation Project (Fund code: 71272178), and Central Higher-Education Fundamental Research Fund (Fund code: NKZXB1118) for financial support of this research. Sunny Li Sun thanks Kemper Summer Research Grant from Bloch School of Management, UMKC. The author team is grateful to the guest editors Kannan Ramaswamy, Aldo Mussachio, Alvaro Cuervo-Cazurra, and Andrew Inkpen, and three anonymous reviewers, as well as Victor Chen, Runhui Lin, Christopher Marquis, Xavier Martin, Mike Peng, Linda Rademaker, Luc Renneboog, Weilei (Stone) Shi, Daying Yan, as well as seminar and conference participants at Harvard Kennedy School, Harvard Business School, Tilburg University, Hong Kong Baptist University, Peking University (National School of Development), and Nankai University for their constructive comments. We also thank Dennis de Buijzer, Ying Zheng, Yan Wang, Haoyu Wu, Haikun Zhu, Lu Liu, Kai Dai, Zhe Wang, Di Yin, Yao Chu, and Yongjing Li for their excellent work on collecting the data and Ray Hardesty for copy editing.

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Authors and Affiliations

  1. CentER for Economic Research, Tilburg University, Tilburg, The Netherlands

    Hao Liang

  2. School of Business, Nankai University, Tianjin, China

    Bing Ren

  3. Henry W Bloch School of Management, University of Missouri – Kansas City, Kansas City, USA

    Sunny Li Sun

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  1. Hao Liang
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Correspondence to Hao Liang.

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Accepted by Kannan Ramaswamy, Guest Editor, 19 May 2014. This article has been with the authors for five revisions.

The second and the third authors contribute equally in this article.

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Liang, H., Ren, B. & Sun, S. An anatomy of state control in the globalization of state-owned enterprises. J Int Bus Stud 46, 223–240 (2015). https://doi.org/10.1057/jibs.2014.35

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