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Does politician turnover affect foreign subsidiary performance? Evidence in China

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Abstract

While research has acknowledged the importance of political risks in affecting multinational companies’ behavior and performance outcomes, the roles of political agents in this process have largely been ignored. This study explores one important dimension of political risks caused by politician turnover at the sub-national level and examines its influence on the performance of foreign subsidiaries. We contend that policy uncertainty arising from politician turnover adversely affects the performance of foreign subsidiaries. We further develop a multi-level framework identifying contingent factors at event (i.e., internal promotion), firm (i.e., international joint venture), and environment (i.e., market intermediary development) levels that moderate the relationship between politician turnover and MNC performance. Analyses of foreign subsidiaries located in 310 Chinese cities from 1998 to 2007 largely support our thesis that politician turnover dampens the performance of foreign subsidiaries. This negative performance impact is then alleviated for internal promotions, international joint ventures, and firms located in regions with a high degree of market intermediary development. Our study opens a new avenue for examining the role of host-country political agents in affecting MNC performance.

Résumé

Bien que la recherche ait reconnu l’importance des risques politiques pour influencer le comportement et les résultats des entreprises multinationales, les rôles des agents politiques dans ce processus ont été largement ignorés. Cette étude explore une dimension importante des risques politiques liés au renouvellement des hommes politiques au niveau infranational et examine son influence sur la performance des filiales étrangères. Nous soutenons que l’incertitude politique résultant du renouvellement des hommes politiques a une incidence négative sur la performance des filiales étrangères. Par ailleurs, nous développons un cadre multi-niveaux identifiant les facteurs contingents aux niveaux événementiel (promotion interne), entreprise (coentreprise internationale) et environnement (développement intermédiaire du marché) qui modère la relation entre la rotation des hommes politiques et la performance des entreprises multinationales (EMN). Les analyses des filiales étrangères situées dans 310 villes chinoises de 1998 à 2007 confirment largement notre thèse selon laquelle le renouvellement des hommes politiques freine la performance des filiales étrangères. Cet impact négatif sur les performances est ensuite atténué pour les promotions internes, les coentreprises internationales et les entreprises situées dans des régions présentant un degré élevé de développement intermédiaire du marché. Notre étude ouvre une nouvelle perspective pour examiner le rôle des agents politiques du pays hôte dans la performance des EMN.

Resumen

Mientras que la investigación ha reconocido la importancia de los riesgos políticos para influenciar el comportamiento y los resultados de desempeño de las compañías multinacionales, los roles de los agentes políticos en este proceso han sido ampliamente ignorados. Este estudio explora una de las dimensiones importantes de los riesgos políticos causados por la rotación de políticos a nivel subnacional y examina su influencia en el desempeño de las filiales extranjeras. Sostenemos que la incertidumbre política derivada de la rotación de los políticos afecta negativamente el desempeño de las subsidiarias extranjeras. Además, desarrollamos un marco multinivel que identifica factores contingente en los niveles de evento (es decir, promoción interna), empresa (es decir, joint venture internacional), y entorno (es decir, el desarrollo de intermediarios en el mercado) que moderan la relación entre la rotación política y el desempeño de la empresa multinacional. Los análisis de las filiales extranjeras ubicadas en 310 ciudades entre 1998 y el 2007 respaldan en gran medida nuestra tesis de que la rotación de los políticos hace perder el desempeño de la filial extranjera. Este impacto negativo en el desempeño es aliviado por las promociones internas, las joint ventures internationales, y las empresas ubicadas en regiones con un alto nivel de desarrollo de intermediarios de mercado. Nuestro estudio abre una nueva avenida para examinar el rol de los agentes políticos en el país anfitrión para afectar el desempeño de la empresa multinacional.

Resumo

Embora a pesquisa tenha reconhecido a importância de riscos políticos para influenciar o comportamento e o desempenho de empresas multinacionais, os papeis dos agentes políticos nesse processo tem sido amplamente ignorados. Este estudo explora uma importante dimensão dos riscos políticos causados ​​pela rotatividade de políticos no nível subnacional e examina sua influência no desempenho de subsidiárias estrangeiras. Nós afirmamos que a incerteza política resultante da rotatividade de políticos afeta adversamente o desempenho de subsidiárias estrangeiras. Nós ainda desenvolvemos um modelo multinível que identifica fatores contingentes nos níveis de evento (isto é, promoção interna), empresa (isto é, joint venture internacional) e ambiente (isto é, desenvolvimento de intermediário de mercado) que moderam a relação entre rotatividade de políticos e desempenho de MNC. Análises de subsidiárias estrangeiras localizadas em 310 cidades chinesas de 1998 a 2007 apoiam amplamente nossa tese de que a rotatividade de políticos reduz o desempenho de subsidiárias estrangeiras. Esse impacto negativo no desempenho é então atenuado para promoções internas, joint ventures internacionais e empresas localizadas em regiões com alto grau de desenvolvimento de intermediários de mercado. Nosso estudo abre um novo caminho para examinar o papel de agentes políticos do país anfitrião para afetar o desempenho de MNC.

摘要

虽然研究已经承认政治风险在影响跨国公司行为和业绩结果方面的重要性, 但政治代理人在这一过程中的作用在很大程度上被忽视了。本研究探讨了地方官员流动所带来的政治风险的一个重要维度, 并考察了其对外国子公司业绩的影响。我们认为官员流动产生的政策不确定性对外国子公司的业绩产生不利影响。我们进一步提出了一个多层面框架, 用于识别在事件(即内部提拔)、公司(即国际合资企业)和环境(即市场中介发展)层面来调节官员流动与跨国公司业绩之间关系的边际因素。对从1998到2007年间位于中国310个城市的外国子公司的分析在很大程度上支持了我们的论点, 即官员流动负面影响外国子公司的业绩。对于内部提拔、国际合资企业以及位于具有高度市场中介发展的地区的公司, 这种负面业绩的影响得到缓解。我们的研究为调查东道国政治代理人在影响跨国公司业绩方面的作用开辟了一条新途径。

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ACKNOWLEDGEMENTS

The study was funded by National Natural Science Foundation of China (Grant Nos. 71572005 and 71632002) as well as Strategic Research Grant (No. 7005201) at City University of Hong Kong.

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Authors and Affiliations

  1. Guanghua School of Management, Peking University, 5 Yiheyuan Road, Haidian, Beijing, China

    Weiguo Zhong

  2. Department of Management, Hong Kong Baptist University, Kowloon, Hong Kong

    Ya Lin

  3. Department of Strategic Management, Business School, Central University of Finance and Economics, 39 Xueyuan Road, Haidian, Beijing, China

    Danxue Gao

  4. College of Business, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon, Hong Kong

    Haibin Yang

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  1. Weiguo Zhong
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  2. Ya Lin
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  3. Danxue Gao
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  4. Haibin Yang
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Correspondence to Haibin Yang.

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Accepted by Jiatao Li, Area Editor, 13 February 2019. This article has been with the authors for three revisions.

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Zhong, W., Lin, Y., Gao, D. et al. Does politician turnover affect foreign subsidiary performance? Evidence in China. J Int Bus Stud 50, 1184–1212 (2019). https://doi.org/10.1057/s41267-019-00229-5

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