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Does Ownership Matter? Firm Ownership and Corporate Illegality in China

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Abstract

This study explores whether or not a firm’s ownership status, as state-owned enterprise (SOE) or private-owned enterprise (POE), will influence its likelihood of engaging in illegality in China. We build our arguments on the institution-based view, positing that firms rationally pursue their interests in the distinct institutional context of China. Compared to SOEs, POEs have limited access to institutional resources, the lack of which threatens their development or even survival, forcing them to “break rules” to overcome institutional barriers. We thus suggest that POEs demonstrate a higher propensity to engage in illegal actions than SOEs do. However, if POEs could gain access to more institutional resources, their motivation to engage in illegal actions is likely to decrease. Following this logic, we suggest that political connections and market development will mitigate the likelihood that POEs will engage in illegal actions. We find support for our predictions using evidence from Chinese listed manufacturers. Our research contributes to the literature by revealing the institutional aspects of corporate illegality in transitional economies.

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Notes

  1. Utilizing institutional loopholes is usually treated as illegal in China. This is because, according to the Chinese legal system, firms can only do business that is expressly permitted by the laws (as opposed to the legal system in U.S. and certain other countries where firms can do anything not forbidden by the laws).

  2. Sina is a leading online searching engine in China. This special forum of Sina.com includes all announcements concerning corporate misconduct and suits for firms listed on both the SHSE and SZSE. This special forum is available at http://finance.sina.com.cn/.

  3. We use the higher political level of either CEO or Chairperson in the PCC or CPPCC to measure the political level of firm.

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Acknowledgements

The authors are grateful to the financial support from the Natural Science Foundation of China (NSFC) (No. 71772071).

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  1. School of Management, Huazhong University of Science and Technology, Wuhan, Hubei, People’s Republic of China

    Yongqiang Gao

  2. College of Business, City University of Hong Kong, Kowloon, Hong Kong

    Haibin Yang

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Correspondence to Yongqiang Gao.

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Gao, Y., Yang, H. Does Ownership Matter? Firm Ownership and Corporate Illegality in China. J Bus Ethics 168, 431–445 (2021). https://doi.org/10.1007/s10551-019-04264-y

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