Managers' Context: How Government Capability Affects Managers
| Author | Alaka N. Rao,Jone L. Pearce,Katherine M. Xin,Qiumei Jane Xu |
| Published date | 01 September 2011 |
| DOI | http://doi.org/10.1111/j.1467-8551.2011.00756.x |
| Date | 01 September 2011 |
Managers’ Context: How Government
Capability Affects Managers
Jone L. Pearce, Katherine M. Xin,
1
Qiumei Jane Xu
2
and Alaka N. Rao
3
The Paul Merage School of Business, University of California, Irvine, CA 92697-3125, USA,
1
Chinese–
European Institute for Business Studies, Pudong, Shanghai, PR China 201206,
2
College of Business and
Management, Northeastern Illinois University, Chicago, IL 60625, USA, and
3
Organization and Management
Department, College of Business, BT 450D, San Jose
´State University, One Washington Square, San Jose
´,CA
95192-0070, USA
Email: jlpearce@uci.edu, katherinexin@ceibs.edu, Q-Xu@neiu.edu, rao_a@cob.sjsu.edu
We draw attention to two changes in management research over the past 25 years: more
focus on the different contexts that constrain management action, and applications of
management knowledge to non-business societal challenges. There has been much
speculation but little comparative empirical research on how government quality affects
what managers do. Building on theory and research from international business,
organization theory and organizational behaviour we propose and test an account of the
ways government capability affects organizational performance through its effects on
managerial assumptions and actions. In a sample of managers working under four
different governments, we find that the more capable the government the less managers
depend on their personal relationships to get their work done, and these in turn mediate
governments’ effects on the managerial cultivation of relationships with government
officials, their use of personal relationships for competitive business advantages, and
their greater distrust, secrecy and withholding of information from business associates.
The implications for cross-national management research and public policy for
economic development are highlighted.
The study of management has matured over the
past 25 years in many ways. Here we draw
attention to two of these. First, research has
developed from a focus on the manager as an
autonomous actor to a more nuanced attention
to the constraints and context within which
managers do their work. Other papers in this
anniversary issue also draw attention to this shift;
for example, Segrestin and Hatchuel note that
managers are weaker and have less latitude than is
often assumed, and Whittington and colleagues
and Sturdy report that managers’ very identities
have eroded as management becomes conflated
with other professions. Second, managerial re-
search has developed an impressive body of
knowledge about how individuals organize for
work, and more recently this knowledge has been
extended from its initial focus on business and
governmental organizations to address other socie-
tal challenges. In this special issue Broadbridge and
Simpson summarize that development in addres-
sing the challenge of combating workplace sexism,
for example. In this paper we hope to advance our
understanding of managers’ contexts and further
extend business-based managerial knowledge to
important societal challenges by proposing and
An earlier version of this paper was presented at the
Academy of Management Annual Meeting. The authors
wish to thank Kevin Steensma, Corey Phelps, Brandon
Fleming, Greg Bigley, Dick Peterson, Cris Gibson,
Martha Feldman, Judy Stepan-Norris and Paul Martor-
ana for their comments on an earlier draft. Much of this
work was completed whilst the first author was Hansen
Visiting Professor at the University of Washington’s
Business School, and she wishes to thank them for their
support.
British Journal of Management, Vol. 22, 500–516 (2011)
DOI: 10.1111/j.1467-8551.2011.00756.x
r2011 The Author(s)
British Journal of Management r2011 British Academy of Management. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
testing theory about how governments may affect
managerial actions that are important to large,
innovation-leading organizations.
Here we illustrate these two developments
with a study building on growing research on
the importance of governments for managerial
strategies and actions (for recent reviews see
Keister and Zhang, 2009; Pearce, Dibble and
Klein, 2009). Theorizing and research on the role
of governments began by documenting relation-
ships among institutions, with little research that
has tested speculations about the individual
managerial actions driving these system-level
effects. Here we extend that research and test
a theory addressing the question: how does
national government capability affect managerial
actions? In keeping with the maturing of manage-
ment theories, we draw on a range of social
sciences: classic theories of bureaucracy, institu-
tion-based strategy theory and organizational
behaviour research on interpersonal trust. We
propose and test the mediating managerial and
employee behaviours that foster certain firm
strategies and organizational inefficiencies with
important implications for innovation and
economic development.
The importance of government capability in
international business research is reflected in the
growing number of definitions of government
capability. Pearce, Dibble and Klein (2009)
recently reviewed the varying ways in which
governments have been categorized in organiza-
tion and management research and grouped them
into differences in governments’ ideology and
capability. Governments’ ideologies vary in their
policies toward firms, with governing ideologies
as various as corporatist or liberal market, and
relative hostility toward independent organiza-
tions. Here we focus on their second category:
relative government capability.
Government capability concerns government’s
ability to assert its authority over its own
territory. The less capable a government the less
able it is to enforce the rule of law, commercial
contracts and property rights, and to ensure
that government officials at all levels implement
policy and refrain from taking bribes or partici-
pating in other forms of corruption. North (1990)
and Fligstein (1996), among many others, de-
scribe how capable governments are necessary to
the management of large complex organizations.
To cite just one example, capable governments
support large independent legal-rational organi-
zations by legalizing and regulating independent
financial markets, so organizations can compete
for financing based on their performance,
not political influence (see Evans and Rauch,
1999). Capable governments effectively invest
in education, prevent officials from capriciously
interfering in management practices, and build
supportive systems that reduce the cost to
individual organizations of providing security
and infrastructure for themselves.
There is accumulating evidence that national
government capability affects firm performance.
Makino, Isobe and Chan (2004) found that
country differences do matter and matter signifi-
cantly for firm performance. Young (2005) has
detailed the efficiency-damaging effects of poorly
specified property rights. Chen, Fan and Wong
(2006) found that, as China has shifted to a more
market-based economy, having government offi-
cials on the firm’s board of directors results in
poorer firm performance because firms find they
must respond to government policy directives as
well as market signals. Further, La Porta et al.
(2002) found that better legal protections for
investors lead to higher stock market valuations,
and Kumar, Ragan and Zingales (1999) report
finding larger listed firms by sales and assets when
there is more reliable legal protection of investors.
Finally, Fogel (2006) found that a country’s
dominance by oligarchic families was associated
with less capable national governments and greater
corruption. Here we bring research from different
subfields and levels of analysis together to propose
the managerial behaviours that produce these
documented organizational performance effects.
Those scholars that have begun to address
how relatively less capable governments affect
managerial action have focused on how they
drive managers to seek sufficient predictability
and security to do business through their
personal relationships. Redding (1990) was
among the first to describe the effects of govern-
ments on managerial practices, observing that the
hostile local governmental officials under Imper-
ial China and for overseas Chinese in Southeast
Asia led Chinese executives to keep their organi-
zations small (to better hide from predatory
officials) and to rely on business dealings with
family and clan members (relying on personal
trust relations to sustain their businesses when
they could not rely on contract enforcement or
How Government Capability Affects Managers 501
r2011 The Author(s)
British Journal of Management r2011 British Academy of Management.
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