IDEAS home Printed from https://ideas.repec.org/a/sae/entthe/v43y2019i4p802-837.html
   My bibliography  Save this article

Barbarians at the Gate of the Middle Kingdom: The International Mobility of Financing Contract and Governance

Author

Listed:
  • Victor Zitian Chen
  • Sunny Li Sun

Abstract

Focusing on equity ratchet as a practice, we study how foreign private equity (PE) investors interacted with local agents in the process of legitimation and legalization of foreign financing contract and governance in the Chinese PE industry, while it was underdeveloped. Based on seven cases in China, we propose a three-stage microprocess model of international institutional entrepreneurship in an emerging field with high ambiguity: framing a motivational vision to promote a new practice; early adoption by local nonmainstream agents who gain legitimacy from diverse sources of institutional logic; and dominant mainstream adopters seeking legal protection to sustain their benefits. Our theory extends the emerging discussion on the transfer of corporate governance and institutional entrepreneurship across borders.

Suggested Citation

  • Victor Zitian Chen & Sunny Li Sun, 2019. "Barbarians at the Gate of the Middle Kingdom: The International Mobility of Financing Contract and Governance," Entrepreneurship Theory and Practice, , vol. 43(4), pages 802-837, July.
    • Handle: RePEc:sae:entthe:v:43:y:2019:i:4:p:802-837
    DOI: 10.1177/1042258717745808
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1042258717745808
    Download Restriction: no
    File URL: https://libkey.io/10.1177/1042258717745808?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Mihail Miletkov & Annette Poulsen & M. Babajide Wintoki, 2017. "Foreign independent directors and the quality of legal institutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 267-292, February.
    3. Jonatan Pinkse & Ans Kolk, 2012. "Multinational enterprises and climate change: Exploring institutional failures and embeddedness," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(3), pages 332-341, April.
    4. Josh Lerner & Antoinette Schoar, 2005. "Does Legal Enforcement Affect Financial Transactions? The Contractual Channel in Private Equity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 223-246.
    5. Cumming, Douglas J., 2005. "Agency costs, institutions, learning, and taxation in venture capital contracting," Journal of Business Venturing, Elsevier, vol. 20(5), pages 573-622, September.
    6. Junyon Im & Sunny Sun, 2015. "Profits and outreach to the poor: The institutional logics of microfinance institutions," Asia Pacific Journal of Management, Springer, vol. 32(1), pages 95-117, March.
    7. Jesse A Ellis & Sara B Moeller & Frederik P Schlingemann & René M Stulz, 2017. "Portable country governance and cross-border acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 148-173, February.
    8. Renneboog, Luc & Simons, Tomas & Wright, Mike, 2007. "Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 591-628, September.
    9. Luc Renneboog & Peter G. Szilagyi & Cara Vansteenkiste, 2017. "Creditor rights, claims enforcement, and bond performance in mergers and acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 174-194, February.
    10. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    11. Douglas Cumming & Igor Filatotchev & April Knill & David Mitchell Reeb & Lemma Senbet, 2017. "Law, finance, and the international mobility of corporate governance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 123-147, February.
    12. Frédérique Déjean & Jean-Pascal Gond & Bernard Leca, 2004. "Measuring the unmeasured : An institutional entrepreneur strategy in an emerging industry," Post-Print halshs-00151270, HAL.
    13. Lerner, Josh, 1995. "Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-318, March.
    14. W. E. Douglas Creed & Maureen A. Scully & John R. Austin, 2002. "Clothes Make the Person? The Tailoring of Legitimating Accounts and the Social Construction of Identity," Organization Science, INFORMS, vol. 13(5), pages 475-496, October.
    15. Cumming, Douglas & Siegel, Donald S. & Wright, Mike, 2007. "Private equity, leveraged buyouts and governance," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 439-460, September.
    16. John Armour & Simon Deakin & Priya Lele & Mathias Siems, 2009. "How Do Legal Rules Evolve? Evidence from a cross-country Comparison of Shareholder, Creditor and Worker Protection," Working Papers wp382, Centre for Business Research, University of Cambridge.
    17. Aizenman, Joshua & Kendall, Jake, 2008. "The Internationalization of Venture Capital and Private Equity," Santa Cruz Department of Economics, Working Paper Series qt3vh3n83p, Department of Economics, UC Santa Cruz.
    18. Tsang, Eric W.K., 2013. "Case study methodology: causal explanation, contextualization, and theorizing," Journal of International Management, Elsevier, vol. 19(2), pages 195-202.
    19. Li, Hongbin & Meng, Lingsheng & Wang, Qian & Zhou, Li-An, 2008. "Political connections, financing and firm performance: Evidence from Chinese private firms," Journal of Development Economics, Elsevier, vol. 87(2), pages 283-299, October.
    20. Gompers, Paul A, 1995. "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
    21. Bruton, Garry D. & Ahlstrom, David, 2003. "An institutional view of China's venture capital industry: Explaining the differences between China and the West," Journal of Business Venturing, Elsevier, vol. 18(2), pages 233-259, March.
    22. Brian C Pinkham & Mike W Peng, 2017. "Overcoming institutional voids via arbitration," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(3), pages 344-359, April.
    23. Garry D Bruton & David Ahlstrom & Tomas Puky, 2009. "Institutional differences and the development of entrepreneurial ventures: A comparison of the venture capital industries in Latin America and Asia," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(5), pages 762-778, June.
    24. Douglas Cumming & April Knill & Kelsey Syvrud, 2016. "Do international investors enhance private firm value? Evidence from venture capital," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(5), pages 620-620, June.
    25. Cumming, Douglas & Fleming, Grant, 2015. "Corporate Defaults, Workouts, and the Rise of the Distressed Asset Investment Industry," Business History Review, Cambridge University Press, vol. 89(2), pages 305-330, July.
    26. Thomas Hellmann, 1998. "The Allocation of Control Rights in Venture Capital Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 57-76, Spring.
    27. Sumita Sarma & Sunny Li Sun, 2017. "The genesis of fabless business model: Institutional entrepreneurs in an adaptive ecosystem," Asia Pacific Journal of Management, Springer, vol. 34(3), pages 587-617, September.
    28. Sunny Li Sun & Yanli Zhang, 2013. "Corporate governance and organizational survival under punctuational change," Nankai Business Review International, Emerald Group Publishing Limited, vol. 4(4), pages 268-289, November.
    29. Bat Batjargal & Mannie (Manhong) Liu, 2004. "Entrepreneurs’ Access to Private Equity in China: The Role of Social Capital," Organization Science, INFORMS, vol. 15(2), pages 159-172, April.
    30. Mike W. Peng & Sunny Li Sun & Lívia Markóczy, 2015. "Human Capital and CEO Compensation during Institutional Transitions," Journal of Management Studies, Wiley Blackwell, vol. 52(1), pages 117-147, January.
    31. Cumming, Douglas & Schmidt, Daniel & Walz, Uwe, 2010. "Legality and venture capital governance around the world," Journal of Business Venturing, Elsevier, vol. 25(1), pages 54-72, January.
    32. Julie Battilana & Bernard Leca & Eva Boxenbaum, 2009. "How actors change institutions : Towards a theory of institutional entrepreneurship," Post-Print hal-00576509, HAL.
    33. Douglass C. North & Robert Paul Thomas, 1970. "An Economic Theory of the Growth of the Western World," Economic History Review, Economic History Society, vol. 23(1), pages 1-17, April.
    34. Weilei (Stone) Shi & Sunny Li Sun & Daying Yan & Zhu Zhu, 2017. "Institutional fragility and outward foreign direct investment from China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(4), pages 452-476, May.
    35. Bernile, Gennaro & Cumming, Douglas & Lyandres, Evgeny, 2007. "The size of venture capital and private equity fund portfolios," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 564-590, September.
    36. Desislava Dikova & Padma Rao Sahib & Arjen van Witteloostuijn, 2010. "Cross-border acquisition abandonment and completion: The effect of institutional differences and organizational learning in the international business service industry, 1981–2001," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(2), pages 223-245, February.
    37. Mike Wright, 2007. "Venture capital in China: A view from Europe," Asia Pacific Journal of Management, Springer, vol. 24(3), pages 269-281, September.
    38. Miguel Meuleman & Mike Wright & Sophie Manigart & Andy Lockett, 2009. "Private Equity Syndication: Agency Costs, Reputation and Collaboration," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5‐6), pages 616-644, June.
    39. Jeffrey J Reuer & Oded Shenkar & Roberto Ragozzino, 2004. "Mitigating risk in international mergers and acquisitions: the role of contingent payouts," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 35(1), pages 19-32, January.
    40. Douglas Cumming, 2006. "Adverse Selection and Capital Structure: Evidence from Venture Capital," Entrepreneurship Theory and Practice, , vol. 30(2), pages 155-183, March.
    41. Dai, Na & Jo, Hoje & Kassicieh, Sul, 2012. "Cross-border venture capital investments in Asia: Selection and exit performance," Journal of Business Venturing, Elsevier, vol. 27(6), pages 666-684.
    42. Miguel Meuleman & Mike Wright & Sophie Manigart & Andy Lockett, 2009. "Private Equity Syndication: Agency Costs, Reputation and Collaboration," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(5-6), pages 616-644.
    43. Victor Chen & Jing Li & Daniel Shapiro & Xiaoxiang Zhang, 2014. "Ownership structure and innovation: An emerging market perspective," Asia Pacific Journal of Management, Springer, vol. 31(1), pages 1-24, March.
    44. Frédérique Dejean & Jean-Pascal Gond & Bernard Leca, 2004. "Measuring the Unmeasured : An Instutional Entrepreneur Strategy in an Emerging Industry," Post-Print halshs-00006012, HAL.
    45. Andrew Delios & Zhi Jian Wu & Nan Zhou, 2006. "A New Perspective on Ownership Identities in China's Listed Companies," Management and Organization Review, The International Association for Chinese Management Research, vol. 2(3), pages 319-343, November.
    46. Elvira Sojli & Wing Wah Tham, 2017. "Foreign political connections," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 244-266, February.
    47. repec:dau:papers:123456789/1478 is not listed on IDEAS
    48. Ayse Saka-Helmhout & Richard Deeg & Royston Greenwood, 2016. "The MNE as a Challenge to Institutional Theory: Key Concepts, Recent Developments and Empirical Evidence," Journal of Management Studies, Wiley Blackwell, vol. 53(1), pages 1-11, January.
    49. Douglas Cumming, 2008. "Contracts and Exits in Venture Capital Finance," The Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 1947-1982, September.
    50. Carney, Michael & Dieleman, Marleen & Taussig, Markus, 2016. "How are institutional capabilities transferred across borders?," Journal of World Business, Elsevier, vol. 51(6), pages 882-894.
    51. Meuleman, Miguel & Wright, Mike, 2011. "Cross-border private equity syndication: Institutional context and learning," Journal of Business Venturing, Elsevier, vol. 26(1), pages 35-48, January.
    52. Douglas Cumming & Grant Fleming, 2016. "Taking China private: The Carlyle Group, leveraged buyouts and financial capitalism in Greater China," Business History, Taylor & Francis Journals, vol. 58(3), pages 345-363, April.
    53. Garry D. Bruton & Igor Filatotchev & Salim Chahine & Mike Wright, 2010. "Governance, ownership structure, and performance of IPO firms: the impact of different types of private equity investors and institutional environments," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 491-509, May.
    54. Cumming, Douglas & Johan, Sofia Atiqah binti, 2008. "Preplanned exit strategies in venture capital," European Economic Review, Elsevier, vol. 52(7), pages 1209-1241, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuying Wu & Zhiqiang Wang & Yuan Lu, 2023. "Mapping the evolution of entrepreneurial research themes in China: A combination analysis of co-word and critical event," Asia Pacific Journal of Management, Springer, vol. 40(3), pages 1133-1167, September.
    2. Mike W. Peng & Joyce C. Wang & Nishant Kathuria & Jia Shen & Miranda J. Welbourne Eleazar, 2023. "Toward an institution-based paradigm," Asia Pacific Journal of Management, Springer, vol. 40(2), pages 353-382, June.
    3. Yuliya Snihur & Llewellyn D. W. Thomas & Raghu Garud & Nelson Phillips, 2022. "Entrepreneurial Framing: A Literature Review and Future Research Directions," Entrepreneurship Theory and Practice, , vol. 46(3), pages 578-606, May.
    4. Wendy A. Bradley & Gilles Duruflé & Thomas F. Hellmann & Karen E. Wilson, 2019. "Cross-Border Venture Capital Investments: What Is the Role of Public Policy?," JRFM, MDPI, vol. 12(3), pages 1-22, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Santiago Mingo & Francisco Morales & Luis Alfonso Dau, 2018. "The interplay of national distances and regional networks: Private equity investments in emerging markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(3), pages 371-386, April.
    2. Zhang, Jing & Zhang, Wei & Schwab, Andreas, 2024. "Interorganizational triads for foreign-market entry: Partnerships among Western, bridge-economy, and local VCs in Mainland China," Journal of Business Venturing, Elsevier, vol. 39(1).
    3. Cumming, Douglas & Zhang, Yelin, 2016. "Alternative investments in emerging markets: A review and new trends," Emerging Markets Review, Elsevier, vol. 29(C), pages 1-23.
    4. Mingo, Santiago & Junkunc, Marc & Morales, Francisco, 2018. "The interplay between home and host country institutions in an emerging market context: Private equity in Latin America," Journal of World Business, Elsevier, vol. 53(5), pages 653-667.
    5. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    6. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    7. Jens Burchardt & Ulrich Hommel & Dzidziso Samuel Kamuriwo & Carolina Billitteri, 2016. "Venture Capital Contracting in Theory and Practice: Implications for Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 40(1), pages 25-48, January.
    8. Markus Taussig, 2017. "Foreignness as both a global asset and a local liability: How host country idiosyncrasies and business activities matter," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(4), pages 498-522, May.
    9. Li, Yong & Vertinsky, Ilan B. & Li, Jing, 2014. "National distances, international experience, and venture capital investment performance," Journal of Business Venturing, Elsevier, vol. 29(4), pages 471-489.
    10. A. Heughebaert & T. Vanacker & S. Manigart, 2012. "Institutional Frameworks, Venture Capital and the Financing of European New Technology-Based Firms," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/809, Ghent University, Faculty of Economics and Business Administration.
    11. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    12. Xu, Kai & Hitt, Michael A. & Brock, David & Pisano, Vincenzo & Huang, Lulu S.R., 2021. "Country institutional environments and international strategy: A review and analysis of the research," Journal of International Management, Elsevier, vol. 27(1).
    13. Amir Pezeshkan & Adam Smith & Stav Fainshmidt & Anil Nair, 2022. "A neo-configurational institutional analysis of international venture capital attractiveness and performance: insights for Asia-Pacific," Asia Pacific Journal of Management, Springer, vol. 39(2), pages 365-393, June.
    14. Nahata, Rajarishi, 2019. "Success is good but failure is not so bad either: Serial entrepreneurs and venture capital contracting," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 624-649.
    15. Plagmann, Carolin & Lutz, Eva, 2019. "Beggars or choosers? Lead venture capitalists and the impact of reputation on syndicate partner selection in international settings," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 359-378.
    16. Simon Döring & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Henning Schröder, 2021. "Institutional investment horizons and firm valuation around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 212-244, March.
    17. Henry Lahr & Andrea Mina, 2014. "Liquidity, Technological Opportunities, and the Stage Distribution of Venture Capital Investments," Financial Management, Financial Management Association International, vol. 43(2), pages 291-325, June.
    18. Tykvová, Tereza, 2018. "Legal framework quality and success of (different types of) venture capital investments," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 333-350.
    19. Chemmanur, Thomas J. & Hu, Gang & Wu, Chaopeng & Wu, Shinong & Yan, Zehao, 2021. "Transforming the management and governance of private family firms: The role of venture capital," Journal of Corporate Finance, Elsevier, vol. 66(C).
    20. Wang, Rouzhi & Wu, Chaopeng, 2020. "Politician as venture capitalist: Politically-connected VCs and IPO activity in China," Journal of Corporate Finance, Elsevier, vol. 64(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:entthe:v:43:y:2019:i:4:p:802-837. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.