Rent appropriation of knowledge-based assets and firm performance when institutions are weak: A study of Chinese publicly listed firms

• Main Authors: QIAN, Cuili, WANG, Heli, GENG, Xuesong, YU, Yangxin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: research and development; rent appropriation; principal-principal conflict; managerial discretion; transition economies; China; Asian Studies; Organizational Behavior and Theory; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4940; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5939/viewcontent/Strategic_Management_Journal___2016___Qian___Rent_appropriation_of_knowledge_based_assets_and_firm_performance_when.pdf
• Institution: Singapore Management University

A firm's strategic investments in knowledge-based assets through research and development (R&D) can generate economic rents for the firm, and thus are expected to affect positively a firm's financial performance. However, weak protection of minority shareholders, weak property rights, and ineffective law enforcement can allow those rents to be appropriated disproportionately by a firm's powerful insiders such as large owners and top managers. Recent data on Chinese publicly listed firms during 2007-2012 were used to demonstrate that the expected positive relationship between knowledge assets and performance is weaker in transition economies when a firm's ownership is highly concentrated and its managers have wide discretion. Moreover, rent appropriation by insiders was shown to vary with the levels of institutional development in which a firm operates.