"Guanxi" Versus Social Network in China: The Perspective of Independent Directors' Connections
https://doi.org/10.56225/ijassh.v3i2.271
Keywords:
Guanxi, Social network, Independent directorsAbstract
The social exchange theory posits that economic and social factors are crucial for successful business relationships. Numerous studies have examined interpersonal connections across cultures. Informal relationships influence economic and social exchange, such as Guanxi in China, Yongo in South Korea, and Wasta in the Middle East. In social network literature, the concept of 'network' encompasses two dimensions: network relation and network structure. The connections among directors affect a company's efficiency from a network perspective. This study conceptualises "Guanxi" and social networks to illustrate the similarities and differences between these two concepts and how Chinese Guanxi differs from Western preconceptions concerning social networks. Given that both "Guanxi" and social networks involve social connections, it is essential to note that Guanxi does not exclusively relate to social networks or merely serves as an alternative term for social networks. Additionally, this study focuses on independent directors' social networks created by serving on multiple boards and reviews the literature on independent directors' connections in China. The methodology employed to accomplish the conceptual definition and distinction was based on a comprehensive literature review that consisted of comparative studies and analyses of other scholars' perspectives and theoretical frameworks. Guanxi" is a distinctive characteristic of Chinese culture, specifically about informal relationships. Guanxi, or "personal connections," is valued by the Chinese more highly than networking, information, and institutions, which Westerners prioritise. In the "Guanxi" concept, emphasis is placed on social capital within the circle of friends, family, and close associates. This study argues that researchers must recognise subtle differences in how informal inter-organisational directors' relationships are developed and utilised in social network and "Guanxi" concepts.
Downloads
References
Almeida, P., & Kogut, B. (1999). Localisation of knowledge and the mobility of engineers in regional networks. Management science, 45(7), 905-917. https://doi.org/10.1287/mnsc.45.7.905
Bian, Y. (2019). Guanxi, how China works. John Wiley & Sons.
Bian, Y.J., 1994. Work and inequality in urban China. 1st Edn., State University of New York Press, New York
Bianchi, P. A., Causholli, M., Minutti‐Meza, M., & Sulcaj, V. (2023). Social networks analysis in accounting and finance. Contemporary Accounting Research, 40(1), 577-623. https://doi.org/10.1111/1911-3846.12826
Bizjak, J., Lemmon, M., & Whitby, R. (2009). Option backdating and board interlocks. The Review of Financial Studies, 22(11), 4821-4847. https://doi.org/10.1093/rfs/hhn120
Blau, P.M. (1964). Exchange and Power in Social Life. New York, NY: John Wiley.
Brown, J. L. (2011). The spread of aggressive corporate tax reporting: A detailed examination of the corporate-owned life insurance shelter. The Accounting Review, 86(1), 23-57. https://doi.org/10.2308/accr.00000008
Brown, J. L., & Drake, K. D. (2014). Network ties among low-tax firms. The Accounting Review, 89(2), 483-510. https://doi.org/10.2308/accr-50648
Bruynseels, L., & Cardinaels, E. (2014). The audit committee: Management watchdog or personal friend of the CEO?. The accounting review, 89(1), 113-145. https://doi.org/10.2308/accr-50601
Burt, R. S. (1978). A structural theory of interlocking corporate directorates. Social Networks, 1(4), 415-435. https://doi.org/10.1016/0378-8733(78)90006-0
Cai, Y., & Sevilir, M. (2012). Board connections and M&A transactions. Journal of Financial Economics, 103(2), 327-349.
Cai, Y., Dhaliwal, D. S., Kim, Y., & Pan, C. (2014). Board interlocks and the diffusion of disclosure policy. Review of Accounting Studies, 19(3), 1086-1119. https://doi.org/10.1007/s11142-014-9280-0
Chen, C. C., Chen, X. P., & Huang, S. (2013). Chinese Guanxi: An integrative review and new directions for future research. Management and Organization Review, 9(1), 167-207. https://doi.org/10.1111/more.12010
Chen, H. W., Liao, F. N., & Han, H. L. (2019). The Impact of Independent Directors' Social Network on Earnings Management: Evidence from China A-Share Listed Firms. Business Management Journal, 41(05), 171-191. https://dx.doi.org/10.19616/j.cnki.bmj.2019.05.011
Chen, S., & Nie, Y. (2020). Director network, governance of independent directors and efficiency of enterprise capital allocation. Entrepreneurship Research Journal, 13(1), 163-184. https://doi.org/10.1515/erj-2020-0201
Chen, X. P., & Chen, C. C. (2004). On the intricacies of the Chinese Guanxi: A process model of guanxi development. Asia Pacific Journal of Management, 21(3), 305-324. https://doi.org/10.1023/B:APJM.0000036465.19102.d5
Chen, Y. (2014). Directors' social networks and firm efficiency: A structural embeddedness perspective. China Journal of Accounting Studies, 2(1), 53-73. https://doi.org/10.1080/21697221.2014.887415
Chen, Y., Wang, Y., & Lin, L. (2014). Independent directors' board networks and controlling shareholders' tunneling behavior. China Journal of Accounting Research, 7(2), 101-118. https://doi.org/10.1016/j.cjar.2013.09.002
Cheng, H., Wang, J., & Xing, M. (2022). How does independent director affect tunneling?—Evidence from social networks. Frontiers in Psychology, 13, 1011761. https://doi.org/10.3389/fpsyg.2022.1011761
Chiu, P. C., Teoh, S. H., & Tian, F. (2013). Board interlocks and earnings management contagion. The Accounting Review, 88(3), 915-944. https://doi.org/10.2308/accr-50369
Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of management, 31(6), 874-900. https://doi.org/10.1177/0149206305279602
Davies, H. (1995). Interpreting Guanxi: The role of personal connections in a high context transitional economy. China business: Context and issues, 155-169. Hong Kong: Longman.
Davies, H., Leung, T. K., Luk, S. T., & Wong, Y. H. (1995). The benefits of "Guanxi": The value of relationships in developing the Chinese market. Industrial marketing management, 24(3), 207-214. https://doi.org/10.1016/0019-8501(94)00079-C
Davis, G. F. (1991). Agents without principles? The spread of the poison pill through the intercorporate network. Administrative science quarterly, 36(4), 583-613. https://doi.org/10.2307/2393275
Du, M., Gao, H., & Zhang, J. (2019). Toward a guanxi-bases view of structural holes in sales gatekeeping: A qualitative study of sales practices in China. Industrial Marketing Management, 76, 109-122. https://doi.org/10.1016/j.indmarman.2018.08.001
Duchin, R., & Sosyura, D. (2013). Divisional managers and internal capital markets. The Journal of Finance, 68(2), 387-429. https://doi.org/10.1111/jofi.12003
Engelberg, J., Gao, P., & Parsons, C. A. (2012). Friends with money. Journal of Financial Economics, 103(1), 169-188. https://doi.org/10.1016/j.jfineco.2011.08.003
Falato, A., Kadyrzhanova, D., & Lel, U. (2014). Distracted directors: Does board busyness hurt shareholder value?. Journal of Financial Economics, 113(3), 404-426. https://doi.org/10.1016/j.jfineco.2014.05.005
Fang, M., Francis, B., Hasan, I., & Wu, Q. (2022). External social networks and earnings management. The British Accounting Review, 54(2), 101044. https://doi.org/10.1016/j.bar.2021.101044
Fich, E. M., & Shivdasani, A. (2006). Are Busy Boards Effective Monitors? Journal of Finance, 61(2):689–724. https://ssrn.com/abstract=677463
Fogel, K., Ma, L., & Morck, R. (2021). Powerful independent directors. Financial Management, 50(4), 935-983. https://doi.org/10.1111/fima.12365
Fracassi, C., & Tate, G. (2012). External networking and internal firm governance. The Journal of finance, 67(1), 153-194. https://doi.org/10.1111/j.1540-6261.2011.01706.x
Godigbe, B. G., Chui, C. M., & Liu, C. L. (2018). Directors network centrality and earnings quality. Applied Economics, 50(50), 5381-5400. https://doi.org/10.1080/00036846.2018.1486992
Granovetter, M. (1992). The Sociological and Economic Approaches to Labor Market Analysis: A Social Structure View. In Mark Granovetter, & Richard Swedberg (Eds.), The Sociology of Economic Life. Boulder: West View Press.
Granovetter, M. (2005). The Impact of Social Structure on Economic Outcomes. The Journal of Economic Perspectives, 19(1), 33–50. Available at: http://www.jstor.org/stable/4134991
Griffin, P. A., Hong, H. A., Liu, Y., & Ryou, J. W. (2021). The dark side of CEO social capital: Evidence from real earnings management and future operating performance. Journal of Corporate Finance, 68, 101920. https://doi.org/10.1016/j.jcorpfin.2021.101920.
Guo, Y., Rammal, H. G., Benson, J., Zhu, Y., & Dowling, P. J. (2018). Interpersonal relations in China: Expatriates' perspective on the development and use of Guanxi. International Business Review, 27(2), 455-464. https://doi.org/10.1016/j.ibusrev.2017.09.012
Hearn, B., Oxelheim, L., & Randøy, T. (2018). The institutional determinants of private equity involvement in business groups—The case of Africa. Journal of World Business, 53(2), 118-133. https://doi.org/10.1016/j.jwb.2016.02.002
Horak, S., & Taube, M. (2016). Same but different? Similarities and fundamental differences of informal social networks in China (guanxi) and Korea (yongo). Asia Pacific Journal of Management, 33, 595-616. https://doi.org/10.1007/s10490-015-9452-x
Hu, Y. M., & Tang, S. L. (2008). Independent Directors and Earnings Information Quality of Listed Companies. Journal of Management World, (9), 149-160. https://dx.doi.org/10.19744/j.cnki.11-1235/f.2008.09.015
Huang, J., & Aaltio, I. (2014). Guanxi and social capital: Networking among women managers in China and Finland. International Journal of Intercultural Relations, 39, 22-39. https://doi.org/10.1016/j.ijintrel.2013.09.002
Hutchings, K., & Weir, D. (2006). Understanding networking in China and the Arab World: Lessons for international managers. Journal of European Industrial Training, 30(4), 272-290. https://doi.org/10.1108/03090590610673641
Hwang, B. H., & Kim, S. (2009). It pays to have friends. Journal of financial economics, 93(1), 138-158. https://doi.org/10.1016/j.jfineco.2008.07.005
Khanna, V., Kim, E. H., & Lu, Y. (2015). CEO connectedness and corporate fraud. The Journal of Finance, 70(3), 1203-1252. https://doi.org/10.1111/jofi.12243
Lambe, C. J., Wittmann, C. M., & Spekman, R. E. (2001). Social exchange theory and research on business-to-business relational exchange. Journal of business-to-business marketing, 8(3), 1-36. https://doi.org/10.1300/J033v08n03_01
Larcker, D. F., So, E. C., & Wang, C. C. (2013). Boardroom centrality and firm performance. Journal of Accounting and Economics, 55(2-3), 225-250. https://doi.org/10.1016/j.jacceco.2013.01.006
Liu, B., Fu, Z.P., & Qiu, B. (2011). Redundant resources, enterprise network location and diversification strategies. Chinese Journal of Management, (12), 1792–1801.
Nolan, J. (2018). Western Bankers in China: Institutional Change and Corporate Governance. Routledge.
Nolan, J., & Rowley, C. (2020). Whither guanxi and social networks in China? A review of theory and practice. Asia Pacific business review, 26(2), 113-123. https://doi.org/10.1080/13602381.2020.1737391
Nolan, J., Rowley, C., & Warner, M. (2016). Business networks in East Asian capitalisms: Enduring trends, emerging patterns. Chandos Publishing.
North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press
Omer, T. C., Shelley, M. K., & Tice, F. M. (2014). Do well-connected directors affect firm value? Journal of Applied Finance (Formerly Financial Practice and Education), 24(2), 17-32. https://ssrn.com/abstract=2665654
Omer, T. C., Shelley, M. K., & Tice, F. M. (2020). Do director networks matter for financial reporting quality? Evidence from audit committee connectedness and restatements. Management Science, 66(8), 3361-3388. https://doi.org/10.1287/mnsc.2019.3331
Peng, M. W., Sun, S. L., Pinkham, B., & Chen, H. (2009). The institution-based view as a third leg for a strategy tripod. Academy of management perspectives, 23(3), 63-81. https://doi.org/10.5465/amp.2009.43479264
Reppenhagen, D. A. (2010). Contagion of accounting methods: Evidence from stock option expensing. Review of accounting studies, 15, 629-657. https://doi.org/10.1007/s11142-010-9128-1
Schonlau, R., & Singh, P. V. (2009). Board networks and merger performance. Working paper, Brigham Young University, Provo, UT.
Snyder, P. J., Priem, R. L., & Levitas, E. (2009). The diffusion of illegal innovations among management elites. In Academy of Management Proceedings (Vol. 2009, No. 1, pp. 1-6). Briarcliff Manor, NY 10510: Academy of Management. https://doi.org/10.5465/ambpp.2009.44264879
Tang, X., Du, J., & Hou, Q. (2013). The effectiveness of the mandatory disclosure of independent directors' opinions: Empirical evidence from China. Journal of Accounting and Public Policy, 32(3), 89-125. https://doi.org/10.1016/j.jaccpubpol.2013.02.006
Wahab, E. A. A., Jamaludin, M. F., Agustia, D., & Harymawan, I. (2020). Director networks, political connections, and earnings quality in Malaysia. Management and Organization Review, 16(3), 687-724. https://doi.org/10.1017/mor.2020.26
Wang, C. L. (2007). Guanxi vs. relationship marketing: Exploring underlying differences. Industrial Marketing Management, 36(1), 81-86. https://doi.org/10.1016/j.indmarman.2005.08.002
Wei, G., Xiao, Z. Z., Nick, T., & Zou, H. (2007). Background of Independent Directors and Corporate Performance. Economic Research Journal, (3), 92-105. http://kns.cnki.net/kcms/detail/detail.aspx?FileName=JJYJ200703008&DbName=CJFQ2007
Wu, Y., & Dong, B. (2021). The value of independent directors: Evidence from China. Emerging Markets Review, 49, 100763. https://doi.org/10.1016/j.ememar.2020.100763
Xiao, W. J., Wang, Z. W., & Duan, Y. (2009). The impact of Major Stake-holding, Independent Directors on Company Performance: An Endogenous Perspective. Nankai Business Review, 12(2), 90-97. https://kns.cnki.net/kcms/detail/detail.aspx?FileName=LKGP200902014&DbName=CJFQ2009
Xie, D. R., & Chen, Y. S. (2012). Board Network: Definition, Characteristics and Measurement. Accounting Research, (3), 44-51+95. http://kns.cnki.net/kcms/detail/detail.aspx?FileName=KJYJ201203009&DbName=CJFQ2012
Yang, D., Sheng, S., Wu, S., & Zhou, K. Z. (2018). Suppressing partner opportunism in emerging markets: Contextualising institutional forces in supply chain management. Journal of Business Research, 90, 1-13. https://doi.org/10.1016/j.jbusres.2018.04.037
Yang, M. M. (1994). Gifts, Favors, and Banquets: The Art of Social Relationships in China. Ithaca, NY: Cornell University Press, 109-145.
Yao, X. Z. (2000). An Introduction to Confucianism. Cambridge, UK: Cambridge University Press.
Zhang, M., Hartley, J. L., Al-Husan, F. B., & ALHussan, F. B. (2021). Informal interorganizational business relationships and customer loyalty: Comparing Guanxi, Yongo, and Wasta. International Business Review, 30(3), 101805. https://doi.org/10.1016/j.ibusrev.2021.101805
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Authors
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyright @2022. This is an open-access article distributed under the terms of the Creative Commons Attribution 4.0 International License (https://creativecommons.org/licenses/by/4.0/) which permits unrestricted to copy and redistribute the material in any medium or format, remix, transform, and build upon the material for any purpose, even commercially.
This work is licensed under a Creative Commons Attribution 4.0 International License.