Risk Aversion and Guanxi Activities: A Behavioral Analysis of CEOs in China
Research output: Contribution to journal › Article
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.
|Research areas and keywords||
Subject classification (UKÄ) – MANDATORY
|Number of pages||27|
|Journal||Academy of Management Journal|
|State||Published - 2017 Aug|