Skip to main content
Log in

Political rotations and cross-province firm acquisitions in China

  • Research Article
  • Published:
Asian Business & Management Aims and scope Submit manuscript

Abstract

The underdeveloped institutional framework and trade barriers between China’s provinces make cross-province acquisitions challenging. We explore how Chinese firms can mitigate this problem. Drawing on social network theory we propose that cross-province rotation of political leaders—a key element of the promotion system of political cadres in China—is a mechanism enabling growth through cross-province acquisitions. We conceptualize rotated leaders as brokers between two geographically dispersed networks. We contribute to the literature on the characteristics of Chinese social networks, the effect of political connections on firm strategy, and the impact of political rotations on firm growth in China’s provinces.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

References

  • Barbalet, Jack. 2017. Guanxi as Social Exchange: Emotions, Power and Corruption. Sociology. https://doi.org/10.1177/0038038517692511.

    Google Scholar 

  • Batjargal, Bat. 2007. Comparative Social Capital: Networks of Entrepreneurs and Venture Capitalists in China and Russia. Management and Organization Review 3 (3): 397–419.

    Article  Google Scholar 

  • Bell, Geoffrey G., and Akbar Zaheer. 2007. Geography, Networks, and Knowledge Flow. Organization Science 18 (6): 955–972.

    Article  Google Scholar 

  • Boisot, Max, and Marshall W. Meyer. 2008. Which Way Through the Open Door? Reflections on the Internationalization of Chinese Firms. Management and Organization Review 4 (3): 349–365.

    Article  Google Scholar 

  • Burt, Ronald S. 1992. Structural holes: The social structure of competition. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Chang, Sea J., and Dean Xu. 2008. Spillovers and Competition Among Foreign and Local Firms in China. Strategic Management Journal 29 (5): 495–518.

    Article  Google Scholar 

  • Chen, Chunlai. 2015. Do Inland Provinces Benefit From Coastal Foreign Direct Investment in China? China & World Economy 23 (3): 22–41.

    Article  Google Scholar 

  • Chen, Chao C., Xiao-Ping Chen, and Shengsheng Huang. 2013. Chinese Guanxi: An Integrative Review and New Directions for Future Research. Management and Organization Review 9 (1): 167–207.

    Article  Google Scholar 

  • Chen, Haowen, Heng Liu, and Han Cheung. 2014. Radical Innovation, Market Forces, Political and Business Relationships. Chinese Management Studies 8 (2): 218–240.

    Article  Google Scholar 

  • Chen, Shimin, Zeng Sun, Song Tang, and Wu Donghui. 2011. Government Intervention and Investment Efficiency: Evidence From China. Journal of Corporate Finance 17 (2): 259–271.

    Article  Google Scholar 

  • Chen, Wenhong. 2007. Does the Colour of the Cat Matter? The Red Hat Strategy in China’s Private Enterprises. Management and Organization Review 3 (1): 55–80.

    Article  Google Scholar 

  • Chi, Jing, Qian Sun, and Martin Young. 2011. Performance and Characteristics of Acquiring Firms in the Chinese Stock Markets. Emerging Markets Review 12 (2): 152–170.

    Article  Google Scholar 

  • China Daily. 2017. Gansu Day Opens at Astana Expo. http://www.chinadaily.com.cn/m/2017expochinaen/2017-08/18/content_30783286.htm. Accessed 3 Jan 2018.

  • Choi, Jongmoo J., Cao Jiang, and Oded Shenkar. 2015. The Quality of Local Government and Firm Performance: The Case of China’s Provinces. Management and Organization Review 11 (4): 679–710.

    Article  Google Scholar 

  • Collins, Jamie D., Tim R. Holcomb, Trevis S. Certo, Michael A. Hitt, and Richard H. Lester. 2009. Learning by Doing: Cross-border Mergers and Acquisitions. Journal of Business Research 62 (12): 1329–1344.

    Article  Google Scholar 

  • Delios, Andrew, Zhi J. Wu, and Nan Zhou. 2006. New Perspective on Ownership Identities in China’s Listed Companies. Management and Organization Review 2 (3): 319–343.

    Article  Google Scholar 

  • Deng, Ping. 2013. Chinese Outward Direct Investment Research: Theoretical Integration and Recommendations. Management and Organization Review 9 (3): 513–539.

    Article  Google Scholar 

  • Du, Julan, Lu Yi, and Zhigang Tao. 2015. Government Expropriation and Chinese-Style Firm Diversification. Journal of Comparative Economics 43 (1): 155–169.

    Article  Google Scholar 

  • Eberhardt, Markus, Zheng Wang, and Zhihong Yu. 2013. Intra-National Protectionism in China: Evidence from the Public Disclosure of ‘Illegal’ Drug Advertising. Paper 2013/04, Research Paper Series China and the World Economy, The University of Nottingham, Nottingham.

  • Ellis, Paul D. 2008. Does Physic Distance Moderate the Market Size-Entry Sequence Relationship? Journal of International Business Studies 39 (3): 351–369.

    Article  Google Scholar 

  • Fan, Gang, Xiaolu Wang, and Haitong Zhu. 2011. NERI Index of Marketization of China’s Provinces: 2011 Report (in Chinese). Beijing: National Economic Research Institute.

    Google Scholar 

  • Fang, Tony. 2005. Chinese business style: A regional approach. In Challenge and Change in China’s Development: An Enterprise Perspective, ed. David H. Brown, and Alasdair Macbean, 56–172. London: Routledge Curzon.

    Google Scholar 

  • Farrell, Carlyle, and Xiaohua Lin. 2011. Strategies of Chinese Multinational Enterprises: Observations and Preliminary Conceptualization. International Journal of China Marketing 2 (1): 92–109.

    Google Scholar 

  • Gulati, Ranjay, and Martin Gargiulo. 1999. Where do Interorganizational Networks Come From? American Journal of Sociology 104 (5): 1739–1793.

    Article  Google Scholar 

  • Gu, Flora F., Kineta Hung, and David K. Tse. 2008. When Does Guanxi Matter? Issues of Capitalization and its Dark Sides. Journal of Marketing 72 (4): 12–28.

    Article  Google Scholar 

  • He, Canfei, Yehua D. Wei, and Xiuzhen Xie. 2008. Globalization, Institutional Change, and Industrial Location: Economic Transition and Industrial Concentration in China. Regional Studies 42 (7): 923–945.

    Article  Google Scholar 

  • Hitt, Michael A., and Kai Xu. 2016. The Transformation of China: Effects of the Institutional Environment on Business Actions. Long Range Planning 49 (5): 589–593.

    Article  Google Scholar 

  • Jansson, Hans, Martin Johanson, and Joachim Ramström. 2007. Institutions and Business Networks: A Comparative Analysis of the Chinese, Russian, and West European Markets. Industrial Marketing Management 36 (7): 955–967.

    Article  Google Scholar 

  • Jia, Ming, and Zhe Zhang. 2013. The CEO’s Representation of Demands and the Corporation’s Response to External Pressures: Do Politically Affiliated Firms Donate More? Management and Organization Review 9 (1): 87–114.

    Article  Google Scholar 

  • Jia, Nan. 2014. Are Collective and Private Political Actions Substitutes or Complements? Empirical Evidence From China’s Private Sector. Strategic Management Journal 35 (2): 292–315.

    Article  Google Scholar 

  • Jia, Ruixue, Masayuki Kudamatsu, and David Seim. 2013. Complementary Roles of Connections and Performance in Political Selection in China. CEPR Discussion Paper No. DP9523. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2284613. Accessed 3 Jan 2018.

  • Kauffeld-Monz, Martina, and Michael Fritsch. 2013. Who are the Knowledge Brokers in Regional Systems of Innovation? A Multi-Actor Network Analysis. Regional Studies 47 (5): 669–685.

    Article  Google Scholar 

  • Ke, Shanzi. 2015. Domestic Market Integration and Regional Economic Growth – China’s Recent Experience From 1995-2011. World Development 66: 588–597.

    Article  Google Scholar 

  • KPMG. 2012. The Future of MNCs in China. A KPMG Study. https://home.kpmg.com/cn/en/home/insights/2012/06/future-for-mnc-in-china-201206.html. Accessed 3 Jan 2018.

  • Lee, Keun, and Xuehua Jin. 2009. The Origins of Business Groups in China: An Empirical Testing of the Three Paths and the Three Theories. Business History 51 (1): 77–99.

    Article  Google Scholar 

  • Li, Haiyang, and Yan Zhang. 2007. The Role of Managers’ Political Networking and Functional Experience in New Venture Performance: Evidence from China’s Transition Economy. Strategic Management Journal 28 (1): 791–804.

    Article  Google Scholar 

  • Li, Hongbin, and Li-An Zhou. 2005. Political Turnover and Economic Performance: The Incentive Role of Personnel Control in China. Journal of Public Economics 89 (9–10): 1743–1762.

    Article  Google Scholar 

  • Li, Julie J., Laura Poppo, and Kevin Z. Zhou. 2008. Do Managerial Ties in China Always Produce Value? Competition, Uncertainty, and Domestic vs. Foreign Firms. Strategic Management Journal 29 (4): 383–400.

    Article  Google Scholar 

  • Li, Weiwen, Ai He, Hailin Lan, and Daphne Yiu. 2012. Political Connections and Corporate Diversification in Emerging Economies: Evidence From China. Asia Pacific Journal of Management 29 (3): 799–818.

    Article  Google Scholar 

  • Liang, Xiaoya, Lu Xiongwen, and Lihua Wang. 2012. Outward Internationalization of Private Enterprises in China: The Effect of Competitive Advantages and Disadvantages Compared to Home Market Rivals. Journal of World Business 47 (1): 134–144.

    Article  Google Scholar 

  • Lin, Ya-Hui, Chung-Jen Chen, and Bou-Wen Lin. 2014. The Roles of Political and Business Ties in New Ventures: Evidence From China. Asian Business & Management 13 (5): 411–440.

    Article  Google Scholar 

  • Liu, Xiaming, Wen Xiao, and Xianhai Huang. 2008. Bounded Entrepreneurship and Internationalization of Indigenous Chinese Private-Owned Firms. International Business Review 17 (4): 488–508.

    Article  Google Scholar 

  • Lu, Jiangyong, Xiaohui Liu, Mike Wright, and Igor Filatotchev. 2014. International Experience and FDI Location Choices of Chinese Firms: The Moderating Effects of Home Country Government Support and Host Country Institutions. Journal of International Business Studies 45 (4): 428–449.

    Article  Google Scholar 

  • Luo, Yadong, Ying Huang, and Stephanie L. Wang. 2012. Guanxi and Organizational Performance: A Meta-Analysis. Management and Organization Review 8 (1): 139–172.

    Article  Google Scholar 

  • Ma, Hao, Shu Lin, and Neng Liang. 2012. Corporate Political Strategies of Private Chinese Firms. Abingdon: Routledge.

    Google Scholar 

  • Michailova, Snejina, and Kate Hutchings. 2006. National Culture Influences on Knowledge Sharing: A Comparison of China and Russia. Journal of Management 43 (3): 383–405.

    Google Scholar 

  • Özcan, Gül B., and Umut Gündüz. 2015. Energy Privatisations, Business-Politics Connections and Governance Under Political Islam. Environment and Planning C: Government and Policy 33: 1714–1737.

    Article  Google Scholar 

  • Pablo, Amy L., Sim B. Sitkin, and David B. Jemison. 1996. Acquisition Decision-Making Processes: The Central Role of Risk. Journal of Management 22 (5): 723–746.

    Article  Google Scholar 

  • Peng, Mike W. 2001. How Entrepreneurs Create Wealth in Transition Economies. The Academy of Management Executive 15 (1): 95–108.

    Article  Google Scholar 

  • Peng, Mike W., and Peggy S. Heath. 1996. The Growth of the Firm in Planned Economies in Transition: Institutions, Organizations, and Strategic Choice. Academy of Management Review 21 (2): 492–528.

    Google Scholar 

  • Peng, Mike W., and Yadong Luo. 2000. Managerial Ties and Firm Performance in a Transition Economy: The Nature of a Micro-Macro Link. Academy of Management Journal 43 (3): 486–501.

    Article  Google Scholar 

  • Peng, Mike W., Yadong Luo, and Lianqiang Sun. 1999. Firm growth via mergers and acquisitions in China. In China 2000: Emerging Business Issues, ed. Lane Kelley, and Yadong Luo, 73–100. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Peng, Mike W., Denis Y.L. Wang, and Yi Jiang. 2008. An Institution-Based View of International Business Strategy: A Focus on Emerging Economies. Journal of International Business studies 39 (5): 920–936.

    Article  Google Scholar 

  • Persson, Petra, and Ekaterina Zhuravskaya. 2008. Incentives or Background of Party Chiefs? Determinants of Variation in Provincial Policy Outcomes in China. New Economic School, Moscow, Russia, Working Paper #WP/2008/084. http://www.nes.ru/dataupload/files/programs/econ/preprints/2008/Zhuravskaya_Persson.pdf. Accessed 3 Jan 2018.

  • Piotroski, Joseph D., and T.J. Wong. 2013. Institutions and information environment of Chinese listed firms. In Capitalizing China, eds. Joseph P.H. Fan and Randall Morck, 201–242. Chicago: University of Chicago Press.

  • Puffer, Sheila M., Daniel J. McCarthy, and Max Boisot. 2010. Entrepreneurship in Russia and China: The Impact of Formal Institutional Voids. Entrepreneurship Theory and Practice 24 (3): 441–467.

    Article  Google Scholar 

  • Reagans, Ray. 2005. Preferences, Identity, and Competition: Predicting Tie Strength From Demographic Data. Management Science 51 (9): 1374–1383.

    Article  Google Scholar 

  • Sheng, Shibin, Kevin Z. Zhou, and J.Li. Julie. 2011. The Effects of Business and Political Ties on Firm Performance: Evidence From China. Journal of Marketing 75 (1): 1–15.

    Article  Google Scholar 

  • Shih, Victor, Christopher Adolph, and Mingxing Liu. 2012. Getting Ahead in the Communist Party: Explaining the Advancement of Central Committee Members in China. American Political Science Review 106 (1): 166–187.

    Article  Google Scholar 

  • Shi, Weilei, Lívia Markóczy, and Ciprian V. Stan. 2014. The Continuing Importance of Political Ties in China. Academy of Management Perspectives 28 (1): 57–75.

    Article  Google Scholar 

  • Su, Fubing, Tao Ran, Lu Xi, and Ming Li. 2012. Local Officials’ Incentives and China’s Economic Growth: Tournament Thesis Reexamined and Alternative Explanatory Framework. China & World Economy 20 (4): 1–18.

    Article  Google Scholar 

  • Tan, Justin, Jun Yang, and Rajaram Veliyath. 2009. Particularistic and System Trust Among Small and Medium Enterprises: A Comparative Study in China’s Transition Economy. Journal of Business Venturing 24 (6): 544–557.

    Article  Google Scholar 

  • Tang, Roger Y.W., and Ali M. Metwalli. 2012. M&A in Greater China: An Update. Journal of Corporate Accounting & Finance 23 (2): 27–40.

    Article  Google Scholar 

  • Ter Wal, Anne L., and Ron A. Boschma. 2009. Applying Social Network Analysis in Economic Geography: Framing Some Key Analytic Issues. Annals of Regional Science 43 (3): 739–756.

    Article  Google Scholar 

  • Tsang, Eric W.K., and Paul S.L. Yip. 2007. Economic Distance and the Survival of Foreign Direct Investments. The Academy of Management Journal 50 (5): 1156–1168.

    Article  Google Scholar 

  • Wang, Xiaolu, Gang Fan, and Yu. Jingwen. 2016. Marketization Index of China’s Provinces: NERI Report 2016 (in Chinese). Beijing: Social Sciences Academic Press.

    Google Scholar 

  • Wu, Gloria M. 2010. “How Does Central Authority Assign Provincial Leaders?” School of Economics and Finance, the University of Hong Kong. http://www.lingnan.sysu.edu.cn/intranet/Upload/2010111014127260.pdf. Accessed 3 Jan 2018.

  • Xiao, Zhixing, and Anne S. Tsui. 2007. When Brokers May not Work: The Cultural Contingency of Social Capital in Chinese High-Tech Firms. Administrative Science Quarterly 52 (1): 1–31.

    Article  Google Scholar 

  • Xin, Katherine K., and Jone L. Pearce. 1996. Guanxi: Connections as Substitutes for Formal Institutional Support. The Academy of Management Journal 39 (6): 1641–1658.

    Article  Google Scholar 

  • Xu, Chenggang. 2011. The Fundamental Institutions in China’s Reforms and Development. Journal of Economic Literature 49 (4): 1076–1151.

    Article  Google Scholar 

  • Xu, Dean, Changhui Zhou, and Phillip H. Phan. 2010. A Real Options Perspective on Sequential Acquisitions in China. Journal of International Business Studies 41 (1): 166–174.

    Article  Google Scholar 

  • Yang, Haibin, Zhiang Lin, and Mike W. Peng. 2011. Behind Acquisitions of Alliance Partners: Exploratory Learning and Network Embeddedness. Academy of Management Journal 54 (5): 1069–1080.

    Article  Google Scholar 

  • Yeung, Irene Y.M., and Rosalie L. Tung. 1996. Achieving Business Success in Confucian Societies: The Importance of Guanxi (Connections). Organizational Dynamics 25 (2): 54–65.

    Article  Google Scholar 

  • Young, Alwyn. 2000. The Razor’s Edge: Distortions and Incremental Reform in the People’s Republic of China. Quarterly Journal of Economics 115 (4): 1091–1135.

    Article  Google Scholar 

  • Zang, Xiaowei. 1991. Provincial Elite in Post-Mao China. Asian Survey 31 (6): 512–525.

    Article  Google Scholar 

  • Zhang, Jun, and Yuan Gao. 2008. Term Limits and Rotation of Chinese Governors: Do They Matter to Economic Growth? Journal of the Asia Pacific Economy 13 (3): 274–297.

    Article  Google Scholar 

  • Zhu, Hong, and Qi Zhu. 2016. Mergers and Acquisitions by Chinese Firms: A Review and Comparison With Other Mergers and Acquisitions Research in the Leading Lournals. Asia Pacific Journal of Management 33 (1): 1107–1149.

    Article  Google Scholar 

  • Zhu, Xufeng, and Youlang Zhang. 2016. Political Mobility and Dynamic Diffusion of Innovation: The Spread of Municipal Pro-Business Administrative Reform in China. Journal of Public Administration Research and Theory 26 (3): 535–551.

    Article  Google Scholar 

  • Zollo, Maurizio, and Harbir Singh. 2004. Deliberate Learning in Corporate Acquisitions: Post-Acquisition Strategies and Integration Capability in U.S. Bank Mergers. Strategic Management Journal 25 (13): 1233–1256.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Xin Chen.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Muratova, Y., Arnoldi, J., Chen, X. et al. Political rotations and cross-province firm acquisitions in China. Asian Bus Manage 17, 37–58 (2018). https://doi.org/10.1057/s41291-018-0029-7

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/s41291-018-0029-7

Keywords

Navigation