Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 20, No. 4, pp.481-504
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2007
Received 14 Jul 2007 Revised 27 Nov 2007

Market Competition, Plan Constraints, and the Hybrid Business Groups: Explaining the Business Groups in China

Keun Lee ; Donghoon Hahn
Professor, School of Economics, Seoul National University, Seoul 151-746, Korea, Fax: +82-2-886-4231 klee1012@plaza.snu.ac.kr
Associate Professor, School of International Studies, The Catholic University of Korea, Seoul, Korea, Fax: +82-2-2164-4578 dhhahn@catholic.ac.kr

JEL Classification: D21, L21, P31

Abstract

An increasing number of Chinese companies are now taking the form of the business group. The big business groups in China tend to have more state shares, be more heavily indebted, less profitable, and accumulating capital more slowly than non-group firms. The emergence of the business groups was an outcome of entry into new profitable business fields by the existing companies given that exit from the old business fields was not easy due to institutional constraints. In this case, entry or expansion into new business fields was often accompanied by asset diversion from old to new business fields conducted by new spin-off firms, leading to the creation of hybrid parent companies. The net effect of this kind of asset diversion is dubious because it was associated with asset striping and/or information hiding from the supervisory state agency. These hybrid form business groups are characterized by low long-term investment ratio and low weight of business income of the parent companies.

Keywords:

Business groups, Hybrid parent company, Asset stripping

Acknowledgments

Revisions have benefited from the comments by, and discussions with, two anonymous referees, as well as Jean-Francois Huchet, Xavier Richet, Athar Hussain, Hubert Bazin, Yang Xiangjun, Qiu Haixiong, Sang-Seung Yi, Si Joong Kim, and Suk Heung Suh. The authors also thank Sharon Kim and the KG support company for editorial assistance.

References

  • Byrd, William. “The Role and Impact of Markets.” 1987, In Gene Tidrick and Chen Jiyuan (eds.), China’s Industrial Reform. Oxford University Press, 1997.
  • Chang, S. J. Business Groups in Asia: Financial Crisis, Restructuring and New Growth. Oxford University Press, 2006. [https://doi.org/10.1007/s10490-006-9013-4]
  • Chen, Jiagui, and Huang, Sujian (eds.) Shichang Jingji yu Qiye Zuzhijie Goude Biange (Market Economy and Changes in the Structure of the Enterprise Organization). Beijing: Jingji Guanli Chubanshe (Economic Management Publishing House), 1995 (in Chinese).
  • Fan, Gang. “Lun Zichan Chongzu (Studies on Asset’s Reorganization).” In Ma Hong (ed.), Qiye Gaigezhongde Zichanchonzu: Anli Yanjiu yu Lilun Fenxi (Asset’s Reorganization in Enterprises’ Reform: Case Studies and Theoretical Analysis). Beijing: Jingji Guanli Chubanshe (Economic Management Publishing House), pp. 125-32, 1996 (in Chinese).
  • Granovetter, Mark. “Coase Revisited: Business Groups in the Modern Economy.” Industrial and Corporate Change 4 (No. 1 1995): 93-130. [https://doi.org/10.1093/icc/4.1.93]
  • Hahn, D., and Lee, Keun. “Chinese Business Groups: Their Origins and Development.” In S. J. Chang (ed.), Business Groups in Asia: Financial Crisis, Restructuring and New Growth. Oxford University Press, 2006. [https://doi.org/10.1093/acprof:oso/9780199287345.003.0009]
  • Han, Dongxun. Gunyu Zhongguo Qiyejituan yu Guojia Konggu Gongside Yanjiu (Studies on Corporate Groups and Stateshareholding Corporations in China). Doctoral Theses of Peking University, 1997 (in Chinese).
  • Huchet, Jean-Francois. “The 15th Congress and the Reform of Ownership: A Decisive Stage for Chinese State Enterprises.” China Perspectives, Hong Kong, China, 1997.
  • Institute for Industrial Economy, China Academy for Social Science (Zhongguo Shehuikexueyuan Gongyejingji Yanjiusuo). Zhongguo Gongye Fazhan Baogao (Report on Industrial Development in China). Beijing: Jingji Guanli Chubanshe (Economic Management Publishing House), 1997 (in Chinese).
  • Institute for Macroeconomy, National Planning Commission (Guojia Jihua Weiyuanhui Hongguan Jingji Yanjiuyuan. “Muqian Qiyejituan Fazhan Zhide Zhuyide Jige Wenti (Several Problems to be Paid Attention in Corporate Groups’ Development).” Xinhua Yuebao (Xinhua Monthly) (February 1998) (in Chinese).
  • Keister, Lisa. “Engineering Growth: Business Group Structure and Firm Performance in China’s Transition Economy.” American Journal of Sociology 104 (No. 2 1998): 404-40. [https://doi.org/10.1086/210043]
  • Kornai, Janos. Economics of Shortage. Vol. 2, Amsterdam: North-Holland, 1980.
  • Lee, Keun. “Property Rights and Agency Problem in China's Enterprise Reform.” Cambridge Journal of Economics 17 (July 1993): 179-94. [https://doi.org/10.1093/oxfordjournals.cje.a035229]
  • Lee, Keun, and Hahn, D. “From Insider-Outsider Collusion to Insider Control in China's SOEs.” Issues and Studies 40 (No. 2 2004): 1-45.
  • Lee, Keun, and Woo, W. “Business Groups in China: Compared with Korean Chaebols.” In R. Hooley and J. Yoo (eds.), The Post-financial Crisis Challenges for Asian Industrialization. Elsevier Sciences, 2002.
  • McNally, Christopher A. “Shanghai's Way Forward ― A Prelude to China's Next Stage of Enterprise Reforms.” China Perspectives 14 (November-December 1997): 33-9.
  • Meyer, Marshal W., and Lu, Xiaohui. “Managing Indefinite Boundaries: The Strategy and Structure of Chinese Business Firms.” Management and Organization Review 1 (No. 1 2004): 57-86. [https://doi.org/10.1111/j.1740-8784.2004.00004.x]
  • Ministry of Finance, PRC. Qiye Kuaiji Zhunze (Rules for the Enterprise Accounting). 1993 (in Chinese).
  • Ministry of Finance, PRC. Hebing Kuaiji Baobiao Zanxing Guiding (Provisional Regulation on the Unified Accounting System). 1995 (in Chinese).
  • Ministry of Finance, PRC. Guanyu Hebing Kuaiji Baobiao Hebing Fanweide Fuhan (Reply for the Scope of Unified Accounting System). 1996 (in Chinese).
  • Penrose, Edith. The Theory of the Growth of the Firm. London: Oxford University Press, 1959, Revised 1995.
  • Shanghai Zhengquanbao (Shanghai Stock News). January - May, 1995, 1996, 1997 (in Chinese).
  • Strachan, H. Family and Other Business Groups in Economic Development: The Case of Nicaragua. New York: Praeger 1976.
  • Tenev, S., and Zhang, C. Corporate Governance and Enterprise Reform in China; Building the Institutions of Modern Markets. Washington, D.C.: World Bank and the International Finance Corporation, 2002.
  • Zhengquan Shibao (Stock Times). January - May, 1995, 1996, 1997 (in Chinese).
  • Zhongguo Zhengquanbao (China Stock Daily). January - May, 1995, 1996, 1997 (in Chinese).