The Effects of Corporate Governance and Institutional Environments on Export Behaviour in Emerging Economies: Evidence from China

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* This paper examines the impact of corporate governance and institutional environments on the export behaviour of firms in emerging economies. We argue that the role of corporate governance should be analysed from both principal- agent and principal-principal perspectives. We hypothesise that institutional environments moderate the effects of corporate governance on export behaviour.

* Analysis of a sample of Chinese listed firms supports our argument that outside directors and CEO shareholding help firms make export decisions, while the effects of ownership concentration may be non-monotonic.

* Sample firms' export propensity is higher the better the institutional environments of their locations. This positive effect of institutional environments comes both directly and from the moderating of the effects of corporate governance.

Keywords: Export behaviour * Corporate governance * Institutions * Chinese listed firms


Despite the rapidly growing literature on the role of corporate governance in business strategic decisions, the way in which corporate governance impacts upon the internationalisation decisions of firms in emerging economies is less clear (Wright et al. 2005). Economic transition in these economies has dramatically changed the corporate governance practices there and provides ideal research opportunities for the study of the interdependence of corporate governance and internationalisation strategies (Filatotchev et al. 2008). Among existing studies, scholars mainly rely on agency theory to explain the effects of corporate governance on these decisions (Filatotchev et al. 2001, Filatotchev et al. 2008). Although principal-agent conflicts between owners (principals) and managers (agents) are important in emerging economies, the conflicts between controlling owners (principles) and minority owners (principals) also play an important role in shaping the corporate governance structure and strategic decisions of firms in these economies (Morck et al. 2005, Young et al. 2008). Moreover, the institutional context of these economies makes the enforcement of agency contracts costly and problematic (Wright et al. 2005). However, few studies have taken the special features of corporate governance in emerging economies into account when applying standard agency theory.

The institutional-based view has become an important perspective in international business research on emerging economies (Henisz/Swaminathan 2008, Hoskisson et al. 2000, Wright et al. 2005). In particular, scholars argue that strategic choices are not only driven by industry conditions and firm capabilities, but are also a reflection of the formal and informal constraints of the particular institutional framework that managers confront (Peng et al. 2008). As a potentially important determinant of internationalisation decisions, institutions may not only directly affect firms' internationalisation strategies, but also indirectly through interplay with other antecedents of internationalisation such as corporate governance (Gao et al. 2008, Young et al. 2008). However, existing studies have rarely explored the link between institutions and strategic choices in international business (Teegen et al. 2004).

This paper examines the impact of corporate governance and institutions on export decisions using a sample of 779 Chinese-listed manufacturing firms for the period of 2002-2005. We choose China as the research setting for several reasons. First, with China's WTO entry in 2001, Chinese firms have entered a new era in which internationalisation has become an important strategic consideration on the agenda of many Chinese companies. Second, like many emerging economies, China has adopted corporate governance concepts which were originally designed to solve principal-agent conflicts in developed economies. However, the standard corporate governance framework has not been fully established in China, and principals cannot be treated as a single entity with common interests (Young et al. …