3. A Note on Business Survival and Social network
Chenlin Zhao and Ronald S. Burt
We extend Burt, Burzynska, and Opper’s cross-sectional network prediction of relative success among Chinese entrepreneurs by predicting which ventures are still active five years later. The cross-sectional analysis is corroborated in three ways (despite the vicissitudes of a national anti-corruption campaign): (1) Businesses run in 2012 by CEOs with a network rich in structural holes are more likely to be active five years later, in 2017. (2) Survival odds are improved if the large, open network around a CEO in 2012 was initially a supportive ‘cocoon’ closed network when the business was founded. (3) Both results are contingent on capturing the guanxi ties valuable early in the history of the business. The two network effects disappear when the network around a CEO is limited to his or her currently valued contacts. Beyond corroboration, we find that advantage is concentrated in ventures that began well and had become successful. Network advantage here does not compensate for weakness – it is a mechanism for cumulative advantage, amplifying the success of businesses already doing well.
Keywords: Chinese management, entrepreneurship, network advantage, social network
4. The CEO Horizon Problem and Managerial Slack in China
Junxiong Fang, Lerong He, and Martin J. Conyon
This study investigates how CEO behavior and incentives change during the CEO’s final years in office, known as the horizon problem. We examine how the horizon problem alters managerial slack, a measure of operational inefficiency and managerial value diversion. Using data on Chinese publicly traded firms between 2003 and 2011, we find that managerial slack increases in the last two years of CEO tenure compared to earlier years. In addition, we find that the increase in managerial slack in CEO final years in office is smaller in privately controlled firms than in state-owned enterprises, smaller in firms with CEO equity ownership and more independent boards compared to those without. We conclude that higher quality corporate governance mechanisms ameliorate the perverse incentives associated with the CEO horizon problem, and reduce CEOs’ tendency to increase managerial slack during their final years in office.
Keywords: CEO turnover, China, corporate governance, horizon problem, slack
5. Family Involvement in Middle Management and Its Impact on the Labor Productivity of Family Firms
Qiongjing Hu, Yanlong Zhang, and Jingjing Yao
Family business owners and researchers tend to overwhelmingly focus on the top-level structure of the firms but ignore the middle-level practice – involving family member in middle-management team. Compared to top managers at the strategic apex, middle-level managers are mainly responsible for internal operations and control, and the composition of the middle-management team has an immediate and direct impact on the overall workforce efficiency of family firms. Integrating agency theory and organizational justice perspective, we proposed that family involvement in middle management would have a negative impact on the labor productivity of family firms. We further corroborated this effect by identifying three boundary conditions at the individual (i.e., familial CEO), organizational (i.e., firm size), and regional (i.e., labor mobility) levels. Using a sample of 1,284 privately owned family firms in China, we found that family involvement in middle management, measured as the percentage of familial middle-level managers, was negatively associated with labor productivity. Furthermore, this negative relationship existed only when the CEO is a family member rather than a professional manager, when the size of the firm is large rather than small, or when the firm is located in regions with low rather than high labor mobility. These findings contribute to family business literature and provide practical implications for human resource management in family firms.
Keywords: family involvement, labor productivity, middle management, multilevel
6. The Darker Side of Social Networks in Transforming Economies: Corrupt Exchange in Chinese Guanxi and Russian Blat/Svyazi
Päivi Karhunen, Riitta Kosonen, Daniel J. McCarthy, and Sheila M. Puffer
This article addresses corruption as a negative practice displaying the ‘darker side’ of social capital in Chinese guanxi and Russian blat/svyazi networks. It presents a conceptual framework integrating several research streams to establish a conceptual linkage between social network characteristics and three forms of corruption between business persons and public officials: cronyism, bribery, and extortion. We argue that the forms of corruption in a society are determined by the nature of social network ties and their underlying morality, with particularistic and general trust being key factors. Our framework depicts networks as three concentric circles representing three types of corruption resulting from their corresponding types of reciprocity: open, closed, and negative. We then apply the framework to the practice of guanxi in China and blat/svyazi in Russia. We propose that different network characteristics and different forms of corruption may help explain what we label the ‘China-Russia paradox’ of why corruption and high economic growth have co-existed in China, at least in the short term, but less so in Russia. We conclude with ethical and legal implications for doing business in those two transforming economies and offer suggestions for future research.
Keywords: China, corruption, reciprocity, Russia, social networks, trust