Status, legitimacy, and the presence of outside directors in China

Abstract

Purpose

The purpose of this paper is to examine firms’ early adoption decision regarding new practices, and what social factors – that is social status and political legitimacy – may influence decision processes under ambiguity.

Design/methodology/approach

The study examines outside director presence among publicly listed firms in China between 1991 and 2000, using discrete time – event history analysis based on observation of 770 firms.

Findings

Social status negatively influences early adoption decisions through the expectation of status enhancement, while political legitimacy is also influential because early adoptions are more attractive to firms in need of political access. Moreover, a firm’ political legitimacy moderates the effect of social status, due to their resource dependence on different stakeholders.

Originality/value

This study’s findings provide important insights for research on diffusion models of new practices by identifying the social processes during early diffusion, and articulating different effects of status and legitimacy. It further emphasizes the sociopolitical perspectives and social motives of governance structure changes in emerging economies.

Citation

Chen, J., Wu, H. and Yao, X. (2016), "Status, legitimacy, and the presence of outside directors in China", Management Decision, Vol. 54 No. 5, pp. 1205-1221. https://doi.org/10.1108/MD-11-2015-0522