Abstract
As China seriously lacks trained and experienced personnel at its current stage of development, management consultancy may be adopted as an economical solution to improve efficiency and performance. However, as institutional theory suggests, it is likely that the adoption of management consultancy in China is driven more by mimetic isomorphism factors than by actual performance considerations. Using data from a survey of 219 listed Chinese firms, our results suggest that there are significant positive effects from mimetic isomorphism factors and adoption of management accounting and controls and information and communication technology. Our study provides strong evidence that the adoption of management consultancy has a positive effect on firm performance, yet we cannot conclude that management consultancy is adopted to improve firm performance. Moreover, state ownership held by state-owned enterprises (SOEs) has a significant and positive effect on management consultancy adoption, whereas state ownership held by government agencies does not. One interpretation is that firms controlled by SOEs have acquired increased autonomy and become more innovative.
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Notes
The types of management consultancy studied here include finance and investment, management methods and systems, strategy, adoption of information technology and systems, and taxation (see Panel B of Table 2).
Based on an exchange rate of RMB–US$ ratio 1:8.
A sample company might use both domestic and foreign consulting firms, but its response cites only the consulting firm with the biggest assignment.
SOEs in China are enterprises wholly owned by the state, and protected explicitly from other governmental departments’ interference or obstructions by the SOE Law (1988) and Autonomous Management Rights Regulations (1992). In addition, SOE managers are motivated by a performance-based bonus payment scheme to increase productivity.
We thank one of the anonymous referees for suggesting this point.
Although it may be argued that CSRC assistance might entice more favourable answers than if CSRC were not involved, the fact that many companies reported no or little adoption of ICT, MACs and management consultancy suggests that this is not a major concern.
Statistically, factors with eigenvalue greater than 1 accounts for the variance of at least a single variable (Kaiser, 1960). Therefore, factors with an eigenvalue of 3.841 are considered significant and retained for interpretation. The generally agreed lower limit for Cronbach's α, a reliability coefficient that assesses the consistency of the entire scale, is 0.70 (Nunnally, 1978). Therefore, Cronbach's α equal to 0.857 is considered satisfactory in the light of the relatively few items in the scale.
Generally, if the stock market values some unmeasured or unrecorded assets (such as growth opportunities) of a company, its Tobin's Q is probably greater than 1.0. However, for Q to be reliable, measures of both the market value and replacement cost of a firm's assets (both tangible and intangible) must be accurate.
Data on ownership, industry membership and firm size are obtained from the sample firms’ publicly available reports for 2004, the year that the survey data were collected.
By input structure, we mean the ‘package’ of assets (both tangible and intangible) used in production and operation. Wiwattanakantang (1999) argues that firms with many intangible (for example, investment opportunities) and less tangible assets are likely to have low debt ratio and therefore fewer agency problems.
The table of correlation coefficients is available from the corresponding author.
StateGOV is measured by the proportion of a firm's total equity held by government agencies. StateSOE is measured by the proportion of a firm's total equity held by SOE. The sum of StateGOV and StateSOE is the proportion of a firm's total equity owned by the state (StateOwn).
Although operational budgeting techniques may not necessarily be new, incorporating them into budget management systems has become a hot topic in Chinese firms over the last decade (Xu and Wang, 1997).
We thank an anonymous referee for suggesting this point.
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Acknowledgements
Jason **ao acknowledges financial support from a research grant of the National Natural Science Foundation, PRC (No. 71002005). The authors thank Chee Chow for useful guidance and close involvement and Lixin Zhao and Peking University Guanghua School of Management for the help provided in data collection. We also thank two anonymous reviewers for their helpful comments. All errors and omissions are the authors’ responsibility.
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Chen, H., Duh, RR., Chan, H. et al. Determinants and performance effects of management consultancy adoption in listed Chinese companies. Asian Bus Manage 10, 259–286 (2011). https://doi.org/10.1057/abm.2011.5
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DOI: https://doi.org/10.1057/abm.2011.5