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The effects of corporate governance and ownership on the innovation performance of Chinese SMEs

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  • Daniel Shapiro
  • Yao Tang
  • Miaojun Wang
  • Weiying Zhang

Abstract

We investigate the degree to which corporate governance and ownership affect the innovation performance of firms in China with a particular focus on privately owned small and medium enterprises. Using the appropriate theoretical frameworks, we derive hypotheses regarding the impact of ownership concentration, board size and composition, and the background of the CEO on innovative activity. These hypotheses are tested using a unique sample of 370 mostly private and relatively small Chinese firms in Zhejiang province, for the period 2004--2006. Using two measures of innovation, invention patents and new product sales, and a variety of estimation methods appropriate to each measure, we find limited evidence that corporate governance affects innovation performance, but the results do depend on the measure of innovation. In general, the results suggest that for this sample, corporate governance and ownership affect innovation activity more strongly when innovation is measured by patenting activity, rather than new product sales. We conclude with a discussion about why this might be.

Suggested Citation

  • Daniel Shapiro & Yao Tang & Miaojun Wang & Weiying Zhang, 2015. "The effects of corporate governance and ownership on the innovation performance of Chinese SMEs," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 13(4), pages 311-335, November.
    • Handle: RePEc:taf:jocebs:v:13:y:2015:i:4:p:311-335
    DOI: 10.1080/14765284.2015.1090267
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    1. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
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    1. Kusi, Baah & Agbloyor, Elikplimi & Asongu, Simplice & Abor, Joshua, 2021. "Foreign Bank Assets and Presence on Banking Stability in Africa: Does Strong and Weak Corporate Governance Systems under different Regulatory Regimes Matter?," MPRA Paper 110136, University Library of Munich, Germany.
    2. Lutao Ning & Martha Prevezer & Yuandi Wang, 2014. "Top Management Turnover and Corporate Governance in China: effects on innovation performance," Working Papers 53, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    3. Daniel Shapiro & Yao Tang & Miaojun Wang & Weiying Zhang, 2017. "Monetary incentives and innovation in Chinese SMEs," Asian Business & Management, Palgrave Macmillan, vol. 16(3), pages 130-157, July.
    4. Murat Ocak & Derya Fındık, 2019. "The Impact of Intangible Assets and Sub-Components of Intangible Assets on Sustainable Growth and Firm Value: Evidence from Turkish Listed Firms," Sustainability, MDPI, vol. 11(19), pages 1-23, September.
    5. Yang, Chih-Hai & Matsuura, Toshiyuki & Ito, Tadashi, 2019. "R&D and patenting activities of foreign firms in China: The case of Japan," Japan and the World Economy, Elsevier, vol. 49(C), pages 151-160.
    6. Gabriela Lucia SIPOS & Alin IONESCU, 2017. "The Influence of Corporate Governance on Innovation Dimensions – Case Study of European Emergent Countries," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 51(4), pages 159-172.
    7. Iwasaki, Ichiro & Ma, Xinxin & Mizobata, Satoshi, 2022. "Ownership structure and firm performance in emerging markets: A comparative meta-analysis of East European EU member states, Russia and China," Economic Systems, Elsevier, vol. 46(2).
    8. Bernardina Algieri & Antonio Aquino & Marianna Succurro, 2020. "The Impact of Cash-Flow and the Main Components of the Capital Structure on Innovative Performances of European Firms," Review of Economics and Institutions, Università di Perugia, vol. 11(1-2).
    9. Samlal, Zoubida, 2020. "Corporate governance and business innovation among listed Moroccan companies," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 25(49), pages 61-72.
    10. Qiang Qiu & Jinyue Yu, 2023. "Impact of independent director network on corporate green innovation: Evidence from Chinese listed companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 3271-3293, November.
    11. Lee, Yung-Chuan & Wang, Ming-Chang, 2017. "How does corporate control affect the appointment, auditing expertise and reputation of independent directors? Evidence from Taiwan," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 130-140.
    12. Rong, Zhao & Wu, Xiaokai & Boeing, Philipp, 2017. "The effect of institutional ownership on firm innovation: Evidence from Chinese listed firms," Research Policy, Elsevier, vol. 46(9), pages 1533-1551.
    13. Margit Molnar, 2017. "Revitalizing China’s Economy by Improved Corporate Governance and State-Owned Enterprise Reforms," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 1-23, October.
    14. Harman Preet Singh & Hilal Nafil Alhulail, 2023. "Information Technology Governance and Corporate Boards’ Relationship with Companies’ Performance and Earnings Management: A Longitudinal Approach," Sustainability, MDPI, vol. 15(8), pages 1-24, April.
    15. Tolossa Fufa Gulema & Zhou Xiaoyan, 2021. "Mediating Role of Innovation Capacity in the Relationship between Corporate governance and Firm Performance: evidence from Chinese listed firms," International Journal of Science and Business, IJSAB International, vol. 5(4), pages 105-122.
    16. Chiu, Ya-Ling & Luo, Jinbo & Boscaljon, Brian L., 2024. "The Mist of corporate innovation," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 602-624.
    17. Fu, Xialoan & Hou, Jun & Sanfilippo, Marco, 2017. "Highly skilled returnees and the internationalization of EMNEs: Firm level evidence from China," International Business Review, Elsevier, vol. 26(3), pages 579-591.
    18. Carmen Barroso-Castro & Marta Domínguez de la Concha Castañeda & Mª de los Ángeles Rodríguez Serrano, 2022. "Listed SMEs and innovation: the role of founding board members," International Entrepreneurship and Management Journal, Springer, vol. 18(2), pages 901-934, June.
    19. Muddassar Sarfraz & Syed Ghulam Meran Shah & Larisa Ivascu & Muhammad Asim Ali Qureshi, 2022. "Explicating the impact of hierarchical CEO succession on small‐medium enterprises' performance and cash holdings," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2600-2614, April.
    20. Shital Jhunjhunwala & Shweta Sharda & J. P. Sharma, 2021. "Translating Innovation into Performance: Understanding Role of the Board," Indian Journal of Corporate Governance, , vol. 14(1), pages 9-26, June.
    21. Minh-Hieu Le & Wen-Min Lu & Qian Long Kweh, 2023. "The moderating effects of power distance on corporate social responsibility and multinational enterprises performance," Review of Managerial Science, Springer, vol. 17(7), pages 2503-2533, October.
    22. Marianna Succurro & Giuseppina Damiana Costanzo, 2019. "Ownership structure and firm patenting activity in Italy," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 239-266, June.
    23. Fang Chen Kao & Minh‐Hieu Le, 2022. "Effects of corporate social responsibility on pharmaceutical multinational enterprises performance: Research and development and business efficiency perspectives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3419-3434, December.

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