Jj Chen

Innovation and Family Ownership: Empirical Evidence from India

Manuscript Type. Empirical. Research Question/Issue. This study examines the direct effect of family ownership on innovation in emerging markets by using data from Indian family‐controlled publicly listed firms as its sample. In particular, we study (1) the direct effects of family ownership on innovation and (2) the influences of business group affiliation on these family firms. Research Findings/Insights. Using an unbalanced panel of 395 Bombay Stock Exchange (BSE) listed Indian firms during the years 2001 and 2008, we found that the impact of family ownership on innovation productivity is positive (after controlling for possible endogeneity). We further emphasized the business group affiliation of family firms and distinguished between the innovation activities of group‐affiliated and stand‐alone family firms. We found that affiliating with top 50 business groups increases the innovation activities of these family firms. Theoretical/Academic Implications. Theoretically, we complement agency theory by incorporating both the institutional perspective and the external resourcing perspective to provide a more robust framework for examining the impact of family ownership on innovation in emerging markets. Methodologically, we adopted a more rigorous econometrics method by providing a panel analysis that used a system GMM estimator and addressed the endogeneity issue thoroughly, which represented a significant improvement over the shortcomings of the methodologies found in the existing literature. Practitioner/Policy Implications. Our findings suggest that the Indian government should provide support for affiliating family firms with business groups while improving policies on information disclosures; it should also establish a proper corporate governance mechanism for private and public family business. The findings further suggest that a corporate governance code should encourage family firms to have an independent professional CEO.

Sustainability and the impact of Chinese policy initiatives upon construction

The environment has been perceived as an international issue, and ways of attaining sustainability are becoming important for countries seeking sustainable development. The international community has been active in developing policy frameworks towards achieving the sustainability, such as an ecological modernization approach and environment assessment. Developing countries deserve special attention in the effort to make sustainability an operative criterion in their development activities. Given the difficulties that developing countries are facing, their perceptions of the concept and principles of sustainability differ in various contexts from those of developed countries, and the attainment of sustainability is much more difficult. Therefore, the establishment of a global partnership is important for the vision of sustainability to be realized and operationalized in the world. The current stage of economic development in China provides an opportunity to incorporate environmental provisions into the national development strategies from a relatively early stage, rather than attempt retrofit to strategies. However, at present Chinas policy initiatives expressed in its Agenda 21 remains only a visionary concept. A comprehensive policy framework and realistic implementation measures are needed. The environmental impacts of the construction industry are extensive, particularly in developing countries. However, as in many developing countries, Chinas sustainable construction is still at its primary stage and current practice is unsatisfactory.

The Impact of the Corporate Governance Code on Earnings Management - Evidence from Chinese Listed Companies

This study investigates the impact of the 2002 Chinese Code of Corporate Governance for Listed Companies on earnings manipulations. We find that, in general, the 2002 CODE had a positive effect on curbing earnings management through the introduction of independent non‐executive directors to the board of directors and the audit committee, and accounting/financial experts to the audit committee. Although such an impact was minimal when the firms were state‐controlled, it became significant once they were privately controlled. Overall, we find regulatory reform on corporate governance plays an important role in deterring the use of earnings management.

Related party transactions as a source of earnings management

In this article, we contribute to the earnings management literature by addressing the issue of Related Party Transactions (RPTs) during a firms Initial Public Offering (IPO) process. We regard RPT-based earnings management as a kind of agency problem in the context of Chinese IPOs, and argue that the conflicts of interests between the controlling shareholders and the minority shareholders are the root of RPT-based earnings management in Chinese IPOs. We provide empirical evidence to demonstrate that RPT-based earnings management in a portfolio of earnings management tools including accruals management, and how it affects the firms post-IPO long-term performance in China. Using 257 Chinese A and B shares IPOs during 1999 and 2000, our empirical findings suggest that controlling shareholders structure operating RPTs in pre-IPO period and these RPTs are positively associated with firms operating performance. The decline in operating RPTs after IPO contributes to firms post-IPO long-term underperformance and negatively affects firms’ stock return.

Configurations of Capacity for Change in Entrepreneurial Threshold Firms: Imprinting and Strategic Choice Perspectives

Imprinting theory suggests that founding conditions are ‘stamped’ on organizations, and these imprinted routines often resist change. In contrast, strategic choice theory suggests that the firm can overcome organizational inertia and deliberately choose its future. Both theories offer dramatically different explanations behind an organizations capacity for change. IPO firms provide a unique context for exploring how imprinting forces interact with strategic choice factors to address organizational capacity for change as a firm moves from private to public firm status. Juxtaposing imprinting and strategic choice perspectives, we employ fuzzy set analysis to examine the multi-level determinants of organizational capacity for change. Our cross-national data reveal three effective configurations of organizational capacity for change within IPOs, and two ineffective configurations. Our results suggest that the antecedents of organizational capacity for change in entrepreneurial threshold firms are non-linear, interdependent, and equifinal.

Financial crisis and executive remuneration in banking industry an analysis of five British banks

The recent financial crisis has accelerated the debate of executive remuneration. Theoretically, there are divergences between the design of executive remuneration suggested by agency theory and reality. In this study, we contribute to this debate by re-visiting the theories underlying the design of executive remuneration and providing empirical evidence from the recently banking failures in the UK. Empirically, we find that ineffective executive remuneration could contribute significantly to business failure. The lavish executive remuneration packages of the five troubled British banks do not reflect the companies’ performances and provide little reward to the shareholders. Theoretically, we find that the executive remuneration design derived from a single agency perspective is insufficient to provide convincing explanation to the real business world during the financial crisis. Prospect theory, real option theory and the managerial power approach all together would complement agency theory to bring the theory of executive remuneration closer to reality. Our extended theoretical framework sheds some lights on the factors that undermine the executive remuneration that a single agency theory does not take into account, and thus have valuable policy implications for improving executive remuneration design in the future.

Expropriation, Weak Corporate Governance and Post-IPO Performance: Chinese Evidence

This study provides evidence that Chinese initial public offerings (IPOs) report better operating performance than industry peers in the pre-IPO period, and worse performance in post-IPO period compared to the pre-IPO level. We find that related party transactions (RPTs) with controlling shareholders have significant effects on the long-run performance of IPO firms. Controlling shareholders structure a large percentage of operating (non-loan) RPTs to artificially boost revenues and/or profits of their IPO subsidiaries in the pre-IPO period. However, in the post-IPO period, controlling shareholders discontinue this RPT-based earnings manipulation practice and begin to expropriate IPO subsidiaries by obtaining a large percentage of cash loans, primarily in return for profits and/or resources transferred into the IPO subsidiaries in the pre-IPO period. Finally, we find that state-controlled IPO firms with a highly concentrated ownership structure and a less independent board of directors are more likely to be expropriated by controlling shareholders in the post-IPO period through related loans.

Urban housing reform in China — Policies and performance

The establishment of a market‐based housing system to privatize housing is the ultimate objective of Chinas housing reforms. Increasing rents has been the major step adopted so far since the housing reforms started in 1984. The authors discuss the phase 2 reforms and give an authoritative insight into Chinas housing difficulties and highlight those areas which need more careful consideration, especially on the legal side.

ARCH effects, trading volume and the information flow interpretation: empirical evidence from the Chinese stock markets

This study revisits the relation between ARCH effects and trading volume. We extend the specification of the VA-GARCH (1, 1) model by using various volume variants and constructing contrast equity groups. We verify that the information flow assumed to be contained in the four trading volume variants has a starkly different explanatory power compared with the ARCH effects. Successive improvement of the models empirical fit and the reduction of the fat-tailedness in the model residuals in the sequence of volume adjustment imply an increase in the strength of explaining the static aspects of volatility dynamics by the further adjusted volume variants.

Development of Urban Housing Policies in China

Housing in China has proved problematic for many years. Since economic reform started in the 1980s, urbanization has been a token of modernization, and consequently housing provision in urban areas has been a major social and economic issue. The major housing problem in China is the scarcity of supply of housing provision. This paper analyses the initial housing reform prior to 1993, and points out the reasons for the lack of success and the lessons drawn from it. It also studies the present reform programme from 1993, and highlights the problems associated with it. It shows that the housing reforms so far, while having moved away from a complete socialist provision of housing, have gone only a small part of the way to a free market in housing. The reforms have been proved disappointing. Although privatization of housing has been the major objective of housing reforms, the reforms are still focused on the rental sector. On the economics side, the rents are set below costs, and the link between the value that people place on housing and the cost to the countrys economy has failed to be appreciated. On the management side, the critical shortcoming of the strategy is its inability to bring an end to the state-owned enterprises direct obligations for employee housing. Several problems associated with the current reforms have also been identified, especially on the legal side.