Abstract
Product innovation is extremely important to the growth, success, and ultimate survival of firms. Although its unique features in small and medium-sized enterprises (SMEs) have gained growing attention in the literature, there is limited knowledge as to how ownership concentration moderates the relationship between product innovation and its determinants. Based upon insights from agency and institutional theories, we examine the moderating effects of ownership concentration on the relationship between product innovation and its key determinants in Chinese SMEs, utilizing a large dataset of 43,728 Chinese firms over the period 2005–2006. We focus on examining the differences between single-owner SMEs, where there is dominant control of one family member, and multiple-owner SMEs, where principal-agent conflicts and principal-principal conflicts are more likely to occur. Our findings indicate that single-owned firms tend to convert research and development into product innovation more efficiently than firms with multiple owners, who are typically better at utilizing external sources of knowledge and human capital.
Similar content being viewed by others
Notes
These studies indicate that over 90 % of SMEs in China are family-owned.
This way of defining SMEs is suggested by the NBS. “Small-sized enterprises” refer to those firms with less than 30 million RMB in sales, 40 million in total assets, or fewer than 300 employees.
Relying on linear model estimates would result in negative fitted values, which deviate from the actual values of liabilities (i.e., zero) and cause estimation bias (Wooldridge, 2003: 565).
References
Acs, Z. J., & Audretsch, D. B. 1990. Innovation and small firms. Cambridge: MIT Press.
Anderson, A., Li, J., Harrison, R., & Robson, P. 2003. The increasing role of small business in the Chinese economy. Journal of Small Business Management, 41: 310–316.
Anderson, R., & Reeb, D. 2003. Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58: 1301–1328.
Audretsch, D., & Feldman, M. 1996. R&D spillovers and the geography of innovation and production. American Economic Review, 86: 630–640.
Berle, A., & Means, G. 1932. The modern corporation and private property. New York: Harcourt, Brace, & World.
Bhattacharya, M., & Bloch, H. 2004. Determinants of innovation. Small Business Economics, 22: 155–162.
Carney, M. 2005. Corporate governance and competitive advantage in family-controlled firms. Entrepreneurship Theory and Practice, 29: 249–265.
Chen, J. 2006. Development of Chinese small and medium-sized enterprises. Journal of Small Business and Enterprise Development, 13: 140–147.
Chen, M. J. 2001. Inside Chinese business. Boston: Harvard Business School Press.
Cohen, W. M., & Levinthal, D. A. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35: 128–152.
Criscuolo, C., Haskel, J. E., & Slaughter, M. J. 2010. Global engagement and the innovation activities of firms. International Journal of Industrial Organization, 28: 191–202.
De Jong, J. P. J., & Vermeulen, P. A. M. 2006. Determinants of product innovation in small firms: A comparison across industries. International Small Business Journal, 24: 587–609.
De Kok, J. M. P., Uhlaner, L. M., & Thurik, R. 2006. Best HR practices in family owned-managed enterprises. Journal of Small Business Management, 44: 441–460.
Deng, Z. L., Jean, R. J., & Sinkovics, R. R. 2012. Determinants of international innovation performance in Chinese manufacturing firms: An integrated perspective. Asian Business & Management, 11: 31–55.
Drucker, P. 1985. Innovation and entrepreneurship: Practice and principles. London: Heinemann.
Eddleston, K. A., Kellermanns, F. W., & Sarathy, R. 2008. Resource configuration in family firms: Linking resources, strategic planning, and technological opportunities to performance. Journal of Management Studies, 45: 26–50.
Freel, M. 2000. Barriers to product innovation in small manufacturing firms. International Small Business Journal, 18: 60–80.
Freel, M. 2003. Sectoral patterns of small firm innovation, networking and proximity. Research Policy, 32: 751–770.
Fritsch, M., & Mueller, P. 2004. The effects of new business formation on regional development over time. Regional Studies, 38: 961–975.
Gao, S., Xu, K., & Yang, J. 2008. Managerial ties, absorptive capacity, and innovation. Asia Pacific Journal of Management, 25(3): 395–412.
Gedajlovic, E., & Carney, M. 2010. Markets, hierarchies and families: Toward a transaction cost theory of the family firm. Entrepreneurship Theory and Practice, 34: 1145–1171.
Gilbert, B. A., McDougall, P. P., & Audretsch, D. B. 2008. Clusters, knowledge spillovers and new venture performance: An empirical examination. Journal of Business Venturing, 23: 405–422.
Hall, B. H., Lotti, F., & Mairesse, J. 2009. Innovation and productivity in SMEs: Empirical evidence for Italy. Small Business Economics, 33: 13–33.
Hoffman, K., Parejo, M., Bessant, J., & Perren, L. 1998. Small firms, R&D, technology and innovation in the UK: A literature review. Technovation, 18: 39–55.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43: 249–267.
Jaffe, A., Trajtenberg, M., & Henderson, R. 1993. Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, 108: 577–598.
Jensen, M. C., & Meckling, W. 1976. Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3: 305–350.
Jiang, Y., & Peng, M. W. 2011a. Are family ownership and control in large firms good, bad, or irrelevant?. Asia Pacific Journal of Management, 28(1): 15–39.
Jiang, Y., & Peng, M. W. 2011b. Principal-principal conflicts during crisis. Asia Pacific Journal of Management, 28(4): 683–695.
Kogut, B., & Zander, U. 1992. Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3: 383–397.
Kotey, B., & Folker, C. 2007. Employee training in SMEs: Effect of size and firm type- family and nonfamily. Journal of Small Business Management, 45: 214–238.
Li, J., Chen, D., & Shapiro, D. M. 2010. Product innovation in emerging economies: The role of foreign knowledge access channels and internal efforts in Chinese firms. Management and Organization Review, 6: 243–266.
Liang, Q., Li, X., & Zheng, D. 2011. The impact of family involvement on the innovation process: Evidence from Chinese listed family firm. Paper presented at the Asia Pacific Journal of Management Special Issue Conference on Strategic Management in Private and Family Businesses, Beijing, China, July.
Liu, W., Yang, H., & Zhang, G. 2012. Does family firm excel in firm performance? An institution-based view. Asia Pacific Journal of Management. doi:10.1007/s10490-010-9216-6.
Lu, Y., Tsang, E. W. K., & Peng, M. W. 2008. Knowledge management and innovation strategy in the Asia Pacific: Toward an institution-based view. Asia Pacific Journal of Management, 25(3): 361–374.
Mancinelli, S., & Mazzanti, M. 2008. Innovation, networking and complementarity. Evidence on SME performances for a local economic system in North-Eastern Italy. Annals of Regional Science, 43: 567–597.
Morck, R., & Yeung, B. 2004. Family control and the rent-seeking society. Entrepreneurship Theory and Practice, 28: 391–410.
Mu, J., Pang, G., & Tan, Y. 2007. New product development in Chinese SMEs. International Journal of Emerging Markets, 2: 123–143.
Newman, A., Gunnessee, S., & Hilton, B. 2012. The applicability of financial theories of capital structure to the Chinese cultural context: A study of privately-owned SMEs. International Small Business Journal, 30: 65–83.
North, D. C. 1990. Institutions, institutional change and economic performance. New York: Norton.
Pelham, A. M. 2000. Market orientation and other potential influences on performance in small and medium-sized manufacturing firms. Journal of Small Business Management, 38: 48–67.
Peng, M. W. 2002. Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19(2–3): 251–267.
Peng, M. W. 2003. Institutional transitions and strategic choices. Academy of Management Review, 28: 275–296.
Peng, M. W., & Heath, P. 1996. The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of Management Review, 21: 492–528.
Peng, M. W., Lee, S. H., & Wang, D. 2005. What determines the scope of the firm over time? A focus on institutional relatedness. Academy of Management Review, 30: 622–633.
Redding, S. G. 1990. The spirit of Chinese capitalism. New York: De Gruyter.
Redding, S. G., & Witt, M. A. 2007. The future of Chinese capitalism. Oxford: Oxford University Press.
Rogers, M. 2004. Networks, firm size and innovation. Small Business Economics, 22: 141–153.
Roper, S. 1997. Product innovation and small business growth: A comparison of the strategies of German, U.K. and Irish companies. Small Business Economics, 9: 523–537.
Salomon, R. M., & Shaver, J. M. 2005. Learning by exporting: New insights from examining firm innovation. Journal of Economics and Management Strategy, 14: 431–460.
Saxenian, A. 1991. The origins and dynamics of production networks in Silicon Valley. Research Policy, 20: 423–437.
Schumpeter, J. A. 1950. Capitalism, socialism and democracy. New York: Harper and Row.
Sirmon, D. G., & Hitt, M. A. 2003. Managing resources: Linking unique resource management and wealth creation in family firms. Entrepreneurship Theory and Practice, 27: 339–358.
Sirmon, D. G., Arregle, J.-L., Hitt, M. A., & Webb, J. W. 2008. The role of family influence in firms’ strategic responses to threat of imitation. Entrepreneurship Theory and Practice, 32: 979–998.
Siu, W. S., Lin, T., Fang, W., & Liu, Z. C. 2006. An institutional analysis of the new product development process of small and medium enterprises (SMEs) in China, Hong Kong and Taiwan. Industrial Marketing Management, 35: 323–335.
Su, Y., & Carney, M. 2011. Can China’s family firms create intellectual capital?. Paper presented at the Asia Pacific Journal of Management Special Issue Conference on Strategic Management in Private and Family Businesses, Beijing, China, July.
Su, Y. S., Tsang, E. W. K., & Peng, M. 2009. How do internal capabilities and external partnerships affect innovativeness?. Asia Pacific Journal of Management, 26(2): 309–331.
Swike, E., Thompson, S., & Vasquez, C. 2008. Piracy in China. Business Horizons, 51: 493–500.
Tan, J., Yang, J., & Veliyath, R. 2009. Particularistic and system trust among small and medium enterprises: A comparative study in China’s transition economy. Journal of Business Venturing, 24: 544–557.
Verhees, F. J. H. M., & Meulenberg, M. T. G. 2004. Market orientation, innovativeness, product innovation, and performance in small firms. Journal of Small Business Management, 42: 134–154.
Villalonga, B., & Amit, R. 2006. How do family ownership, management, and control affect firm value?. Journal of Financial Economics, 80: 385–417.
Wooldridge, J. 2003. Introductory econometrics: A modern approach. New York: Thomson Learning.
Wu, J., Xu, D., & Phan, P. 2011. The effects of ownership concentration and corporate debt on corporate divestitures in Chinese listed firms. Asia Pacific Journal of Management, 28(1): 95–114.
Xu, Z., Lin, J., & Lin, D. 2008. Networking and innovation in SMEs: Evidence from Guangdong Province, China. Journal of Small Business and Enterprise Development, 15: 788–801.
Yang, J., Liu, H., Gao, S., & Li, Y. 2012. Technological innovation of firms in China: Past, present, and future. Asia Pacific Journal of Management. doi:10.1007/s10490-010-9243-3.
Yeung, H. 2006. Change and continuity in Southeast Asian Chinese business. Asia Pacific Journal of Management, 23(3): 229–254.
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G., & Jiang, Y. 2008. Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45: 198–220.
Zahra, S., & Filatotchev, I. 2004. Governance of the entrepreneurial threshold firm: A knowledge-based perspective. Journal of Management Studies, 41: 885–897.
Zeng, S. X., Xie, X. M., & Tam, C. M. 2010. Relationship between cooperation networks and innovation performance of SMEs. Technovation, 30: 181–194.
Zhang, J., & Ma, H. 2009. Adoption of professional management in Chinese family business: A multilevel analysis of impetuses and impediments. Asia Pacific Journal of Management, 26(1): 119–139.
Zhang, S., & Li, X. 2008. Managerial ties, firm resources, and performance of cluster firms. Asia Pacific Journal of Management, 25(4): 615–633.
Zhou, C., Delios, A., & Yang, J. Y. 2002. Locational determinants of Japanese foreign direct investment in China. Asia Pacific Journal of Management, 19(1): 63–86.
Zhou, C., & Li, J. 2008. Product innovation in emerging market-based international joint ventures, an organizational ecology perspective. Journal of International Business Studies, 39: 1114–1132.
Zhu, Y., Wittman, X., & Peng, M. W. 2012. Institution-based barriers to innovation in SMEs in China. Asia Pacific Journal of Management. doi:10.1007/s10490-011-9263-7.
Author information
Authors and Affiliations
Corresponding author
Additional information
This research was sponsored by the Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China (10XNK135). The authors are grateful to the constructive comments received from the seminar participants at Renmin University of China in Beijing on May 25, 2010, APJM Special Issue guest editors (Yuan Lu, Kevin Au, Erming Xu, and Mike Peng), and audience members of the APJM Special Issue Conference in Beijing on July 9, 2011.
Rights and permissions
About this article
Cite this article
Deng, Z., Hofman, P.S. & Newman, A. Ownership concentration and product innovation in Chinese private SMEs. Asia Pac J Manag 30, 717–734 (2013). https://doi.org/10.1007/s10490-012-9301-0
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10490-012-9301-0