The dual effects of state ownership on export activities of emerging market firms: an inducement-constraint perspective.
| Verfasser | Wu, Jie |
| Posten | RESEARCH ARTICLE - Report |
Abstract In this study, we integrate resource dependence theory and agency theory to argue that state ownership has a dual (inducement and constraint) effect on emerging market firms' export performance. Building on this inducement-constraint framework, we hypothesize a non-linear relationship between state ownership and export performance of emerging market firms that is further moderated by the varying levels of home country government effectiveness. Using cross-sectional data of 4,239 firms from 16 emerging economies, as well as panel data of more than 10,000 Chinese exporting firms, we find supporting evidence for these hypotheses. The theoretical development and empirical findings of this study highlight the complex and dynamic relationship between state ownership, government effectiveness, and export performance among firms from emerging economies.
Keywords State ownership * Institutional environment * Government effectiveness * Export intensity * Emerging economies
1 Introduction
The share of emerging economies in world trade has risen significantly during the past 15 years (Benkovskis and Worz 2013). In these emerging economies, state-owned enterprises (SOEs) represent a ubiquitous organizational form and play a critical role in exporting activities (Aulakh et al. 2000; Siegel 2007). For example, by the end of 2012, more than 278,479 SOEs in China contributed $22.6 billion monthly to the nation's exports, accounting for 11.8 % of total exports (http://www. customs.gov.cn/publish/portal0/tab400/). Moreover, national export promotion policies, such as direct subsidies to SOEs from central and
local governments, tax and tariff relief, bank loans, government contracts with payments well above costs, privileged use and retention of foreign exchange earned from exports, and services that facilitate transportation and contacting foreign customers, all assist SOEs in exporting. Given the increasing share of emerging economies in world trade, and the tremendous contributions of SOEs to these economies' exporting activities, addressing the issue of state-owned exporters is both timely and essential.
The importance of state-owned exporters has attracted unprecedented research interest from strategy and international business scholars. In a nearly exhaustive literature search on this topic, we discovered most of the relevant studies in the context of emerging economies as reflected in Table 1. However, previous studies on the relationship between state ownership and exporting have shown mixed findings. For example, in their study of the relationship between state ownership and export propensity of firms in Russia, Ukraine, and Belarus, Buck et al. (2000) find a positive but non-significant effect of state ownership on export propensity. In contrast, Cuervo-Cazurra and Dau (2009) find, in the context of Latin America, that domestic SOEs were comparatively less likely than domestic private and foreign-invested firms to engage in export activities. They suggest that reduction of state interference through structural reform negatively influences foreign sales of domestic SOEs. These inconclusive findings suggest a plausible non-linear relationship between state ownership and exporting. However, no effort has been made to reconcile these contradictory findings.
Although recent studies emphasize the institutional environment of exporting firms as extending from the operating environment, their lack of consideration of the influence of government effectiveness in an SOE's home environment is a consistent limitation of this work. The level of government effectiveness varies among emerging economies and differentiates these economies from their developed counterparts (Mahmood and Rufin 2005). Because government effectiveness in emerging economies significantly shapes the strategies and performance of both domestic and foreign-invested firms, studies that omit this factor when examining the drivers of export behavior and performance are seriously limiting their understanding of exporting (Gao et al. 2010). Unfortunately, existing studies have paid little attention to the role of government effectiveness of home countries. Meyer (2004) calls for further research on this important contingency in the strategy-performance linkage of emerging market firms (EMFs).
To reconcile these research gaps, we integrate resource dependence theory (Pfeffer 1981; Pfeffer and Salancik 2003) and agency theory (La Porta et al. 2002; Shleifer and Vishny 1994, 1997) to show the dual (inducing and constraining) effects of state ownership on export performance in the context of emerging economies. We use resource dependence theory to argue that governments possess the resources SOEs need to pursue export activities, which potentially creates a dependence of SOEs on the government to support their business activities. However, excessive reliance on government resources exposes firms to agency problems, compromising economic efficiency. Thus, we use agency theory to argue that state ownership essentially represents a political relationship between a firm and the political organization that owns the firm. In this type of principal-agent relationship, governments and politicians as key owners can coerce managers to act in line with their non-economic objectives. As such, managers are likely to conform to this pressure given that their welfare depends on future favors and resources provided by the principal. Because the principals of SOEs are political owners with non-economic objectives, their preferences and interests likely diverge from those of managers. Thus, the integration of the two theories enables us to propose an inducement-constraint framework through which we can show how the interplay of these processes can more fully explain the complex relationships among SOEs, government effectiveness, and export performance in emerging economies.
Our theoretical departure lies in the development of inducement and constraint processes that capture the dual aspects of state ownership. This feature enables us to distinguish and integrate both the positive and negative effects of state ownership and reconcile the inconsistent findings of existing research in a non-linear model. We examine these theoretical arguments in the context of firms in emerging market economies (EMFs), for which governments in general still control critical resources, and financial markets are under-developed (Khanna and Palepu 1997; Ramamurti 2000). EMFs with a certain level of state ownership are in a better position than other firms to generate proportionally increased foreign sales by capitalizing on the state as a resource provider. However, this government resource-induced export benefit is likely to be offset by the costs resulting from the excessive control of the state through its politically appointed managers. These managers' non-economic objectives prevail over efficiency for export competitiveness, thus leading to a decline of foreign sales. Therefore, the role of state ownership in helping EMFs to export is subject to the varying degrees of government effectiveness across emerging countries. The historical account shows that while, overall, the institutional infrastructure of emerging economies is not well developed (Khanna and Palepu 1997), considerable variation exists in the level of government effectiveness in exporting activities. Thus, the interaction between government effectiveness and state ownership offers a unique opportunity to investigate EMFs' export actions.
This study contributes to the literature in several ways. First, we extend the research on the relationship between state ownership and exporting by integrating resource dependence theory and agency theory to advance an inducement-constraint framework in explaining the dual effects of state ownership on export performance. The juxtaposition of inducement and constraint mechanisms provides a more comprehensive picture of the role of state ownership on firms' export behaviors. Second, this study enriches the literature on organizational processes and dynamics by specifying the institutional conditions of the double-edged mechanism of state ownership in shaping firm behavior and strategic choices. We empirically demonstrate that the effect of state ownership on firm export performance varies with the level of government effectiveness across emerging economies.
2 Theoretical Framework
2.1 State Ownership and Export
State ownership, which epitomizes the formal inter-organizational relationship between a firm and the government, refers to the percentage of government ownership in a firm (Boisot and Child 1988). From a comprehensive view of the literature, we present a summary of the empirical and conceptual studies on export performance in emerging economies, many of which pertain to SOEs' exporting activities. As Table 1 details, most of these studies analyze the leadership strategies, locations, branding, guanxi, entrepreneurial characteristics, and marketing capabilities of EMFs (Aulakh et al. 2000; Filatotchev et al. 2001; Zhou et al. 2007). Some studies stress how low cost strategies and outside control influence EMFs' competitiveness in international markets (Dominguez and Sequeira 1993). Others focus on the operating environments as part of a firm's organizational environment in its home country (Buck et al. 2000; Cuervo-Cazurra and Dau 2009). Despite the large number of export determinant studies (see Table 1; for a literature review, see also Katsikeas et al. 2000), limited efforts have been devoted to exploring the determinants of state ownership in SOEs' exporting (O'Neill et al. 2004). That is, no study has explored the complex relationship between state ownership and the export performance of EMFs. This research gap is alarming because state ownership, as an important and parsimonious variable, allows organization and management scholars to explore the institutional...
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