Modernizing Chinese firms

This dissertation is aimed at addressing three general questions regarding the transformation of Chinese firms into modern corporations: First, how have the corporate governance and strategies of Chinese firms changed in the past decade? Second, why did the organizational changes happen? Third, what are the consequences of the changing corporate governance and strategies on firm outcomes such as firm performance? Different from conventional efficiency-based studies on corporate governance and corporate strategy, this dissertation adopts a new institutional approach and examines how the institutional environment affects the corporate governance and strategies of large firms. Particularly, I emphasize the role of external institutional forces such as the state and the financial market in shaping the internal governance and strategies of large corporations, and stress the role of power and legitimacy in organizational change. Using quantitative longitudinal data of 676 Chinese publicly-traded companies (19972007) and qualitative data from in-depth interviews, I demonstrate that almost all Chinese companies appointed outside directors, separated their CEO and board Chair positions, and adopted the de-diversification strategy, but firms subject to stronger state and financial market pressure were more likely to do so. I argue that external forces such as the state and the financial market used their political and market power to promulgate an ideal version of the "modern" firm (largely based on the American model), forcing Chinese firms to adapt their governance practices and strategic choices in tandem. From a broader perspective, it is a process of "modernizing" Chinese firms, or a process of building a "Modern Enterprise System" in China. Specifically, this study shows that the Chinese state was the major agent in the diffusion of the American shareholder-oriented corporate governance to Chinese companies, and both the diversification (pre-1997) and the de-diversification (post-1997) strategies of Chinese firms were largely driven by state policies. Furthermore, I find that China's financial market and institutional investors have been increasingly important in disciplining the corporate executives, shaping the corporate strategies and enhancing the performance of Chinese corporations over the last decade.