Culture, Marketization, and Owner-Manager Agency Costs: A Case of Merchant Guild Culture in China

With regard to religious influence, previous literature has investigated the influence of religion or religiosity on business ethics such as ethical behavior, corporate environmental responsibility, corporate philanthropy, emergency helping, corporate irregularities, and earnings management (e.g., Conroy and Emerson 2004; Du 2013, 2014a; Du et al. 2014; Dyreng et al. 2012; Longenecker et al. 2004; McGuire et al. 2012; Weaver and Agle 2002; etc.).

Hui (Anhui merchant guild) was one of the most successful merchant guilds in ancient China in terms of economic power, operation spectrum, capital amount, and talent. Deeply influenced by Confucianism, Hui valued integrity and morality in operations. Yue (Guangdong merchant guild) mainly engaged in foreign trade including flavors and wool products, as well as China's tea and silk products. After the end of the Opium War in 1842, Yue successfully changed itself into modern business not only in Guangdong but also in Hong Kong and Southeast Asia. Yue is a merchant guild of high-risk taking, courageous, pragmatic, and smart businessmen. Min (Fujian merchant guild) set up strongholds in the coastline areas, which ensured it to collect and hoard commodities and thus combined domestic trade with foreign trade. Min was one of the most influential merchant guilds at the end of the feudal period. Please refer to Zhang (2011) for the comprehensive introductions for all merchant guilds in ancient China.

This argument can borrow direct support from the existing literature in religion, Confucianism, and management (Du 2014a, b, c; El Ghoul et al. 2013; Marquis et al. 2007). This branch of previous literature argues and documents the influence of social norms and social atmosphere on individual behavior and corporate decisions.

Results are not qualitatively changed by deleting the top and bottom 1 % of the sample or by no winsorization.

In addition, we also employ the variance inflation factors and condition indices to diagnose the multicollinearity among variables used in our study, respectively. Non-tabulated results show that the largest condition index (or intercept-adjusted condition index) is far less than 10, suggesting that there is no serious multicollinearity in our empirical models (Belsley 1991; Belsley et al. 1980).

Though non-tabulated for brevity, we follow Du (2013) to conduct two additional checks: First, Fig. 1 shows that ten nationally famous merchant guilds do not distribute equally across China mainland. As the response, we employ two reduced samples to re-estimate Eq. (1) and Eq. (2): (1) we exclude firms in five autonomous regions of minority nationalities and (2) we delete firms in provinces, municipalities, and autonomous regions without any nationally famous merchant guilds. Non-tabulated results are qualitatively similar to those in Tables 4 and 5 and validate Hypotheses 1 and 2 again. Second, as shown in Fig. 1, for all ten nationally famous merchant guilds, five of them are located in coastal developed areas. This characteristic motivates us to re-consider whether the locations of nationally famous merchant guilds are proxies for urbanization. Therefore, we examine the association between nationally famous merchant guilds and GDP per capita, the proxy for urbanization, and we do not find significant association between nationally famous merchant guilds and GDP per capita. Above findings, taken together, reinforce the causality between merchant guild culture and owner-manager agency costs in our study to some extent.

Extant literature (Bebchuk et al. 2002; Core et al. 2008; Du 2013) argues that one person will have more managerial power if he/she serves as the CEO and the chairman of the board simultaneously.

Non-tabulated results are available upon request (similarly hereinafter).