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Risk Aversion and Guanxi Activities : A Behavioral Analysis of CEOs in China

Opper, Sonja LU ; Nee, Victor and Holm, Hj LU (2017) In Academy of Management Journal 60(4). p.1504-1530
Abstract
In China, the strategic use of personal relationships is pervasive in transactions with government authorities as well as in inter-firm relations. Explanations as to when and why firms rely on guanxi emphasize a close link between organizational resources, environment and corporate strategic choices. Our study shifts attention to the importance of CEO preferences, specifically risk aversion, and suggests an investment theory of strategic reliance on personal relations to achieve organizational goals. To explore the association between CEO risk aversion and reliance on guanxi activities, we combine incentivized behavioral tasks using multiple price list formats for risk elicitation with a manager and firm survey. Our analysis focuses on 345... (More)
In China, the strategic use of personal relationships is pervasive in transactions with government authorities as well as in inter-firm relations. Explanations as to when and why firms rely on guanxi emphasize a close link between organizational resources, environment and corporate strategic choices. Our study shifts attention to the importance of CEO preferences, specifically risk aversion, and suggests an investment theory of strategic reliance on personal relations to achieve organizational goals. To explore the association between CEO risk aversion and reliance on guanxi activities, we combine incentivized behavioral tasks using multiple price list formats for risk elicitation with a manager and firm survey. Our analysis focuses on 345 randomly sampled CEOs of private manufacturing companies in the Yangzi delta region in China. The results confirm the importance of risk preferences in explaining strategic choices and performance effects: there is a negative association between risk aversion and reliance on guanxi activities, although company age and market orientation moderate the behavioral effect of risk preferences. But when risk-averse CEOs utilize guanxi, they tend to be more successful, as measured by the firm’s financial performance. More generally, our results underscore the importance of personal preferences as determinants of corporate strategy and performance. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
behavioral strategy, China, guanxi, management behavior, risk aversion, risk experiment
in
Academy of Management Journal
volume
60
issue
4
pages
27 pages
publisher
Academy of Management
external identifiers
  • scopus:85021833066
ISSN
0001-4273
DOI
10.5465/amj.2015.0355
language
English
LU publication?
yes
id
aab6bbe4-287d-474e-85ab-a1bab448c187
date added to LUP
2016-05-05 09:44:36
date last changed
2017-11-05 05:02:59
@article{aab6bbe4-287d-474e-85ab-a1bab448c187,
  abstract     = {In China, the strategic use of personal relationships is pervasive in transactions with government authorities as well as in inter-firm relations. Explanations as to when and why firms rely on guanxi emphasize a close link between organizational resources, environment and corporate strategic choices. Our study shifts attention to the importance of CEO preferences, specifically risk aversion, and suggests an investment theory of strategic reliance on personal relations to achieve organizational goals. To explore the association between CEO risk aversion and reliance on guanxi activities, we combine incentivized behavioral tasks using multiple price list formats for risk elicitation with a manager and firm survey. Our analysis focuses on 345 randomly sampled CEOs of private manufacturing companies in the Yangzi delta region in China. The results confirm the importance of risk preferences in explaining strategic choices and performance effects: there is a negative association between risk aversion and reliance on guanxi activities, although company age and market orientation moderate the behavioral effect of risk preferences. But when risk-averse CEOs utilize guanxi, they tend to be more successful, as measured by the firm’s financial performance. More generally, our results underscore the importance of personal preferences as determinants of corporate strategy and performance. },
  author       = {Opper, Sonja and Nee, Victor and Holm, Hj},
  issn         = {0001-4273},
  keyword      = {behavioral strategy,China,guanxi,management behavior,risk aversion,risk experiment},
  language     = {eng},
  number       = {4},
  pages        = {1504--1530},
  publisher    = {Academy of Management},
  series       = {Academy of Management Journal },
  title        = {Risk Aversion and Guanxi Activities : A Behavioral Analysis of CEOs in China},
  url          = {http://dx.doi.org/10.5465/amj.2015.0355},
  volume       = {60},
  year         = {2017},
}