The effect of historical government affiliations on resource acquisition and organizing capability: evidence from Chinese private firms

Publication Date10 December 2018
Date10 December 2018
AuthorLihua Wang,Xiaoya Liang
SubjectStrategy,International business
The effect of historical government
afliations on resource acquisition and
organizing capability: evidence from
Chinese private rms
Lihua Wang and Xiaoya Liang
Purpose Grounded in the structural and relational inertia liter ature, this paper aims to investigate
how two types of founding conditions prior state ownership and a founder’s state career history
may individually and interactively affect the resource acquisition and organizing capability of
Design/methodology/approach This study uses a unique, large-scalesurvey of 480 manufacturing
firms in China.
Findings The findings show that prior state ownership is positively related to a firm’s resource
acquisition, and the founder’s state career history moderates the relationship between prior state
ownership and a firm’s organizing capability such that a founder with a state career history can help a
privatized firm overcomeits structural inertia and achieve superiororganizing capabilities. However, it is
found that a founder’s state career history is not associated with a firm’s resource acquisition or
Research/limitations/implications First, this study is cross-sectional. Second, this paperrefocuses
on Chinese manufacturing firmsin two regions only. Third, the authors do not have information on how
long founders had been in state sector. Fourth,the measure of resource acquisition and organizational
capabilityis a self-reported perceptual measure.
Practical implications First, this study suggests that founders’ state career hi story does not
benefit firms in resource acquisitions. Once founders do not work for government organizations,
they can lose the associated resource benefits. The founders may have to a ctively maintain their
historical connections with the current government officials to cont inue to receive various
information and resource benefits. Second, this study indicates that it i s possible for privatized firms
to have resource acquisitionadvantages resulting from their historical heritage and at the same time
overcome the inferior organizing capabilities from their histor ies by having a founder with a prior
state career history. Such founders tend to have the ability to overcome the unf avorable imprinting
effect of previous histories and to help private firms develop better str ategies and structures to fit the
dynamic and competitiveenvironment.
Social implications This study indicates that it is possible for state-owned enterprises to become
efficientif they can employ capable managers with superior managerialskills.
Originality/value Current literature on the effect of government affiliations on fir m behavior and
outcomes typically focuses on existing government affiliations and their be nefits on a firm’s
economic and information resources, legitimacy and new venture performance. T his study is one of
the first to examine how historical government affiliations may affect both theresource acquisition
and organizing capability of a firm. In addition, existing studies have rarely studied simultaneously
how a firm’s and a founder’s historical government affiliations may independently and interactively
affect a firm’s ability to acquire resources and develop capabili ties critical for a firm’s performance
and survival.This study fills this gap.
Keywords State ownership, Inertia, Chinese private firms, Resource and capability, State career history
Paper type Research paper
Lihua Wang is based at San
Francisco State University,
San Francisco, California,
Xiaoya Liang is based at
the School of Management,
Fudan University,
Shanghai, China.
Received 21 October 2016
Revised 7 February 2017
8 April 2017
Accepted 21 April 2017
DOI 10.1108/JABS-10-2016-0141 VOL. 12 NO. 4 2018, pp. 341-360, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 341
There is growing evidence that in transitional economies, where market-supporting
regulations and institutions are not fullydeveloped, and the government still has tight
control over many critical inputs and resources that a business needs to survive,
government affiliations can serve as substitutes to facilitate business transactions, secure
scarce resources, ensure protection from unstable institutional structures and enhance firm
performance (Li et al.,2011;Sun et al., 2010;Li et al.,2008;Wang et al., 2013;Lin et al.,
2014;Stuart and Wang, 2016).
While existing government affiliations (both at firm and individual levels) may benefit firms,
do historical government affiliations of firms and individuals serve as assets or liability for
firms? Current literature has not sufficiently addressed this question. This is a significant
issue in transitional economies because many firms have privatized and many individuals
working in government agencies (GAs) or state-owned enterprises (SOEs) have moved out
of the state system to found private firms. These firms and individuals are no longer
government affiliated. Evidence from China has shown that being a prior member of
government institutions broadens managers’ network size and brings economic or
information benefits for firms (Li et al., 2008,2006;Stuart and Wang, 2016). Researchers
have also considered how the state career history of top management may bring various
benefits for private firms in China (Peng and Luo, 2000;Li et al., 2008;Wang et al.,2011;
Stuart and Wang, 2016). The findings of these studies seem to suggest that the benefits of
historical government affiliations of a manager may persist over time even when the
individual is no longer affiliated with the government. This is consistent with the literature on
relational inertia in social capital, which argues that actors tend to preserve their previous
relationships with other actors, even when the situation has changed and opportunities for
new relationship developmenthave arisen (Gargiulo and Benassi, 2000).
Existing studies, however, have rarely studied simultaneously how a firm’s and a founder’s
historical government affiliations may independently and interactively affect a firm’s ability to
acquire resources and develop capabilities critical for firm performance. In addition, while
prior research on relational inertia mostly suggests that relational inertia negatively affects
an actor’s future development of social capital (Gargiulo and Benassi, 2000;Briscoe and
Tsai, 2011), we suggest that relationalinertia with the government can be a positive attribute
for firms in transitional economies in that these historical affiliations of a firm and/or a
founder could continue to facilitate resource acquisition for firms. However, we also argue
that historical government affiliations of a firm, such as being a former SOE, may hurt a
firm’s capability development because of structural inertia problems arising from the
historical conditions of being SOEs (Colombo and Delmastro, 2002;Marquis, 2003;Maurer
and Ebers, 2006). We further propose that firms with historical government affiliations could
mitigate their inferior capabilitiesthrough a founder with prior government affiliations.
To test these ideas, we use survey data of Chinese private firms to examine how a firm’s
and a founder’s historical governmentaffiliations may individually and interactively affectthe
ability of a firm to acquire resources and develop capabilitiesfor competitive advantages. In
this study, firms with historical government affiliations are defined as firms with prior state
ownership, i.e. firms founded as SOEs (i.e. enterprises controlled by the central
government) or collective-owned enterprises (COEs, i.e. enterprises controlled by local
governments) that were later privatized (hence “historical”). Founders with historical
government affiliations, which we term as founders with state career history, are those
founders with prior working experiencein SOEs/COEs or GAs (i.e. state or local government
offices) before founding the focal privatefirms.
We chose to study Chinese private firms because private firms represent a growing
proportion of all firms in China (Lardy, 2014). Privatefirms are not endorsed or protected by
the government through state ownership, yet in China, the government still has tight control
over many critical resources that firms need for survival, such as land, bank loans and raw
materials. In addition, in the underdevelopedregulatory regime, the government has private

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