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Culture, Marketization, and Owner-Manager Agency Costs: A Case of Merchant Guild Culture in China

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Abstract

This study explores cultural influence on corporate behavior employing the case of merchant guild culture in China and further the moderating role of Marketization. Using hand-collected data on merchant guild culture, we find that merchant guild culture is significantly negatively associated with owner-manager agency costs, suggesting that merchant guild culture in ancient China still has its continuous and remarkable effects on managerial behavior in contemporary corporations. This finding also implies that merchant guild culture motivates managers to upgrade the efficiency of controlling operating costs, reduces agency conflicts between management and shareholders, and eventually mitigates owner-manager agency costs. Moreover, provincial Marketization level attenuates the negative association between merchant guild culture and owner-manager agency costs. Above results are robust to a variety of alternative measures of merchant guild culture and owner-manager agency costs. Furthermore, our findings are still valid after controlling for the potential endogeneity between merchant guild culture and owner-manager agency costs.

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Notes

  1. With regard to religious influence, previous literature has investigated the influence of religion or religiosity on business ethics such as ethical behavior, corporate environmental responsibility, corporate philanthropy, emergency helping, corporate irregularities, and earnings management (e.g., Conroy and Emerson 2004; Du 2013, 2014a; Du et al. 2014; Dyreng et al. 2012; Longenecker et al. 2004; McGuire et al. 2012; Weaver and Agle 2002; etc.).

  2. Hui (Anhui merchant guild) was one of the most successful merchant guilds in ancient China in terms of economic power, operation spectrum, capital amount, and talent. Deeply influenced by Confucianism, Hui valued integrity and morality in operations. Yue (Guangdong merchant guild) mainly engaged in foreign trade including flavors and wool products, as well as China's tea and silk products. After the end of the Opium War in 1842, Yue successfully changed itself into modern business not only in Guangdong but also in Hong Kong and Southeast Asia. Yue is a merchant guild of high-risk taking, courageous, pragmatic, and smart businessmen. Min (Fujian merchant guild) set up strongholds in the coastline areas, which ensured it to collect and hoard commodities and thus combined domestic trade with foreign trade. Min was one of the most influential merchant guilds at the end of the feudal period. Please refer to Zhang (2011) for the comprehensive introductions for all merchant guilds in ancient China.

  3. This argument can borrow direct support from the existing literature in religion, Confucianism, and management (Du 2014a, b, c; El Ghoul et al. 2013; Marquis et al. 2007). This branch of previous literature argues and documents the influence of social norms and social atmosphere on individual behavior and corporate decisions.

  4. Results are not qualitatively changed by deleting the top and bottom 1 % of the sample or by no winsorization.

  5. In addition, we also employ the variance inflation factors and condition indices to diagnose the multicollinearity among variables used in our study, respectively. Non-tabulated results show that the largest condition index (or intercept-adjusted condition index) is far less than 10, suggesting that there is no serious multicollinearity in our empirical models (Belsley 1991; Belsley et al. 1980).

  6. Though non-tabulated for brevity, we follow Du (2013) to conduct two additional checks: First, Fig. 1 shows that ten nationally famous merchant guilds do not distribute equally across China mainland. As the response, we employ two reduced samples to re-estimate Eq. (1) and Eq. (2): (1) we exclude firms in five autonomous regions of minority nationalities and (2) we delete firms in provinces, municipalities, and autonomous regions without any nationally famous merchant guilds. Non-tabulated results are qualitatively similar to those in Tables 4 and 5 and validate Hypotheses 1 and 2 again. Second, as shown in Fig. 1, for all ten nationally famous merchant guilds, five of them are located in coastal developed areas. This characteristic motivates us to re-consider whether the locations of nationally famous merchant guilds are proxies for urbanization. Therefore, we examine the association between nationally famous merchant guilds and GDP per capita, the proxy for urbanization, and we do not find significant association between nationally famous merchant guilds and GDP per capita. Above findings, taken together, reinforce the causality between merchant guild culture and owner-manager agency costs in our study to some extent.

  7. Extant literature (Bebchuk et al. 2002; Core et al. 2008; Du 2013) argues that one person will have more managerial power if he/she serves as the CEO and the chairman of the board simultaneously.

  8. Non-tabulated results are available upon request (similarly hereinafter).

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Acknowledgments

We appreciate constructive comments from Prof. Samuel Michael Natale (the section editor) and one reviewer. Our study also benefits a lot from valuable suggestions from Zongfeng Xiu, Zejiang Zhou, Wentao Feng, Dongchang Ke, Wei Jian, Yingying Chang, Shaojuan Lai, Jun Lu, Hao Xiong, Fei Hou, Junting Zhou, Weidong Li, Jianguo Sun, and participants of our presentations (On Informal Systems: China’s Realities and Research Opportunities) at Xiamen University, Anhui University, and Shanghai University.

Funding

This study was funded by the financial support from the Key Project of Key Research Institute of Humanities and Social Science in Ministry of Education (approval number: 13JJD790027).

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Authors and Affiliations

  1. School of Management, Xiamen University, Xiamen, 361005, Fujian, China

    Xingqiang Du, Quan Zeng & Hongmei Pei

  2. Department of Business Administration, Xiamen Ocean Vocational College, Xiamen, 361012, Fujian, People’s Republic of China

    Jianying Weng

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  1. Xingqiang Du
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Correspondence to Jianying Weng.

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Appendix

Appendix

See Table 10.

Table 10 Variable definitions
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Du, X., Weng, J., Zeng, Q. et al. Culture, Marketization, and Owner-Manager Agency Costs: A Case of Merchant Guild Culture in China. J Bus Ethics 143, 353–386 (2017). https://doi.org/10.1007/s10551-015-2765-3

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