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China’s business network structure during institutional transitions

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Abstract

This study adopted a structural approach to examine the formation and characteristics of Chinese business networks via interlocking directorates during a stage in China’s institutional transitions. Analyses of the network structures of 949 listed companies revealed that: (1) Chinese business networks were smaller in scale and lower in density than their Western counterparts; (2) no nationwide network with a dominant center existed; (3) interlock occurred mainly in the form of smaller business groups which tended to be regionally fragmented; (4) ties were more prevalent among industrial peers than with financial institutions; and (5) government ownership was predominant. These findings therefore deepen our understanding about the pattern and extent of business interlock in China. Not only do these findings provide substantive implications to the notion and dimensionality of guanxi, but they also offer inspiration to managers and policy makers by illuminating key characteristics of network structure. Laying these foundations shall pave the way for future research in the structure of Chinese business networks.

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Notes

  1. The website of China State Information Center is http://www.sic.gov.cn/web/index.asp.

  2. Age information was obtained from the COIN dataset. Working experience was obtained from the website of Sina.com which provides relevant information on public-listed stocks in China.

  3. Five ultimate controllers were identified from the data: the state, private (legal or individual), foreign, social community, and employee. In some cases it was not possible to identify the ultimate controller; i.e., the sixth type of control is unidentified control. Control data was collected from the China Center for Economic Research (CCER) database (see http://www.sinofin.com.cn).

  4. The industrial categorization method was released by China’s Securities Regulatory Commission (CSRC) in 2001 and is compatible with the international standard industrial code.

  5. The total number of one-link ties is 378, two-link ties is 419, and three-link ties is 6,304, respectively.

  6. The time periods of the samples used for comparison are somewhat different. However, since these works closely build upon each other, they represent the best available data for the purposes of comparison (Au et al., 2000).

  7. Since many financial institutions are not listed in China the results may not fully reflect the extent of interlocking directorship ties.

  8. A component is a subnetwork in which firms within it can reach all others through a direct or indirect path (Scott, 1991a). Actors within a component are not attached to those outside it. Analyzing components is useful for assessing the pattern of the business network. For example, it can show whether the business has an integrated network center. A business can contain multiple independent components, which are unconnected with each other. It can contain only one large component in which all firms are connected to one another. A component can be described according to its size, defined as the N-membership (where N is not less than two) or the number of its actors (Scott, 1992). Aside from components, there may also be isolates in the business which are not connected to others.

  9. In a full clique, the number of ties that are present is equal to the maximum number of ties that are possible (Scott, 1992). For example, a three-member clique contains three ties, and a four-member clique contains six ties. In other words, in a full clique, all the firms have direct ties with the others.

  10. Definitions and measurements are delineated in Table 6.

  11. Another study conducted by the authors on the interorganizational loan guarantee ties suggested that board interlock is positively related to loan guarantee tie. Therefore, the positive relationship between interlock and firm leverage ratio may be largely due to bank requests that industrial corporations provide peer guarantees (to mitigate risk) when they seek financial resources (i.e., the higher the interlock, the higher the loan guarantee, and the higher the leverage ratio).

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Authors and Affiliations

  1. Department of Management, School of Business, Nankai University, Tianjin, 300071, China

    Bing Ren

  2. Department of Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong

    Kevin Y. Au

  3. Centre for Economics and Policy, University of Cambridge, Cambridge, UK

    Thomas A. Birtch

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  1. Bing Ren
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  2. Kevin Y. Au
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  3. Thomas A. Birtch
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Correspondence to Bing Ren.

Additional information

This research was supported in part by the Natural Science Foundation of China (Fund code: 70602008). We thank Mike Peng (Editor-in-Chief) for his guidance, Yina Mao, Hao Liang and Liyang Pi for research assistance, and Paul Miesing, Sunny Li Sun, and the two anonymous reviewers of the Asia Academy of Management conference in Tokyo for their helpful comments on earlier versions of this paper.

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Ren, B., Au, K.Y. & Birtch, T.A. China’s business network structure during institutional transitions. Asia Pac J Manag 26, 219–240 (2009). https://doi.org/10.1007/s10490-008-9106-3

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