Research on the Differentiated Impact Mechanism of Parent Company Shareholding and Managerial Ownership on Subsidiary Responsive Innovation: Empirical Analysis Based on ‘Principal–Agent’ Framework
Round 1
Reviewer 1 Report
I really appreciate the authors contribution to studying the mechanism of subsidiary responsive innovation decision-making, based on the difference of governance logic between shareholders and managers when they are holding shares at the same time.
The paper is written in the required style, with clarity which demonstrates the author’s knowledge in the field.
The paper structure is in line with the structure requested by the journal. The authors highlighted the main contributions of the paper compared with previous studies. The methodology is well presented. References are appropriate with the paper aim and research developed.
For all that, there is needed a minor improvement:
In the analyses performed (sections 4.2 and 4.3), the authors should provide an interpretation of their results correlated with the cited literature.
Author Response
Response to Reviewer 1 Comments
Dear Professor:
We very much appreciate your careful reading of our manuscript and your valuable suggestions. Thank you very much for your affirmation and guidance.We have carefully considered the comments and have revised the manuscript accordingly.The comments can be summarized as follows:
Point 1: I really appreciate the authors contribution to studying the mechanism of subsidiary responsive innovation decision-making, based on the difference of governance logic between shareholders and managers when they are holding shares at the same time.
Response 1: First of all, thank you very much for your recognition and evaluation about of the study of the mechanism of subsidiary responsive innovation decision-making, based on the difference of governance logic between shareholders and managers when they are holding shares at the same time. Thank you for your professional and patient guidance.We will be very modest to accept your comments and guidance, and make a serious response.
Point 2: The paper is written in the required style, with clarity which demonstrates the author’s knowledge in the field.
Response 2: About the written style, actually,we have make some efforts before the paper was submitted as we know that written style is very important. We have read and studied a lot of articles published in Sustainability.Thank you for your approval.
Point 3: The paper structure is in line with the structure requested by the journal. The authors highlighted the main contributions of the paper compared with previous studies. The methodology is well presented. References are appropriate with the paper aim and research developed.
Response 3:Thank you for your careful reading and evaluation of the paper structure and the main contributions of the paper compared with previous studies,methodology and references.
Point 4: In the analyses performed (sections 4.2 and 4.3), the authors should provide an interpretation of their results correlated with the cited literature.
Response 4: In the analyses performed (sections 4.2 and 4.3), we explained the results of the data analyses according to your opinions and guidance, and the process of explanation was linked to the correlated literature and the hypothesis development of the paper .The revised content is as follows,also you can see the perfected content in the manuscript.
4.2. Multiple Regression Analysis
Based on the model designed above, the article uses statistical software to carry out regression analysis. The specific regression results are shown in Table 4. The regression results of model 1 show that there is a significant relationship between responsive innovation behavior and the nature of the parent company shareholding and the size of subsidiaries, which supports the existing research[39,40,43,44]. The above results also confirm one of the core ideas of the article: Taking risks is one of the conditions required for innovation, the state-owned nature and larger scale of enterprises enable enterprises to face the risks associated with innovation without fear of risks.
After controlling the relevant variables, model 2 adds the parent company shareholding as an explanatory variable. The results show that there is a significant correlation between the parent company shareholding and responsive innovation (p<0.01), with a regression coefficient of -0.054 and a goodness of fit of 0.148. The regression results of model 2 show that the parent company shareholding has a negative impact on responsive innovation, the higher the parent company shareholding, the lower the subsidiary responsive innovation level, Hypothesis 1 is thus verified. Innovation has high potential benefits and considerable risks[13,14].Enterprise groups have the characteristic of sharing risks, bring great innovation advantages to group companies. However, as the degree of connection between the parent company and the subsidiary company increases, the interest binding between the parent company and the subsidiary company further deepens, and the parent company can only disperse less risks, so it does not want the subsidiary company to take more risks.
The regression results of model 3 point out that under the condition of controlling variables such as the asset-liability ratio of subsidiaries and the size of subsidiaries, there is a significant positive correlation (p<0.1) between responsive innovation and the interaction term, with a coefficient of 0.038 and a goodness of fit of 0.147. This shows that, within the framework of the corporate group, the lower the degree of separation between ownership and control, the stronger the negative impact of the parent company shareholding on the subsidiary responsive innovation, Hypothesis 2 is thus verified. The higher degree of separation between control rights and cash flow rights leads to a complicated control chain between the actual controller and the listed company [21]. At this time, the parent company can take less risks under the same control rights, which also gives the parent company stronger motivation to support the innovation of subsidiaries.
After controlling the relevant variables, model 4 adds subsidiary managerial ownership as an explanatory variable. The results show that there is a significant correlation between subsidiary managerial ownership and responsive innovation (p<0.05), with a regression coefficient of 0.046 and a goodness of fit of 0.152. The regression results of model 4 show that subsidiary managerial ownership has a positive impact on responsive innovation. With the increase of subsidiary managerial ownership, the level of subsidiary responsive innovation will also increase, Hypothesis 3 is thus verified. With the improvement of the level of managerial ownership, innovation becomes profitable. Successful innovation can enhance the value of the enterprise, thus benefiting the management who holds shares. Even if the innovation fails, the process of innovation can be a foil for the efforts of managers. Therefore, with the increase of shareholding level, managers are also more inclined to promote innovation in a company.
The regression results of model 5 show that under the condition of controlling variables such as subsidiary asset-liability ratio and subsidiary size, there is no significant correlation between the interaction term and responsive innovation, Hypothesis 4 has not been verified. The hypotheses proposed in this paper have been verified partially, See Table 5 for details.
|
Variable |
Responsive Innovation |
||||
|
M1 |
M2 |
M3 |
M4 |
M5 |
|
|
Constant Term |
-0.019 （-0.83） |
-0.025 （-1.06） |
-0.021 （-0.89） |
-0.024 （-1.04） |
-0.024 （-1.05） |
|
Control Variable |
|
|
|
|
|
|
PC |
0.079* （1.76） |
0.087* （1.92） |
0.084* （1.85） |
0.090** （1.98） |
0.090** （1.99） |
|
SSB |
-0.028 （-1.31） |
-0.026 （-1.23） |
-0.025 （-1.19） |
-0.027 （-1.28） |
-0.027 （-1.28） |
|
ISB |
0.001 （0.03） |
-0.002 （-0.12） |
-0.002 （-0.11） |
0.008 （0.39） |
0.007 （0.37） |
|
ALRS |
-0.115*** （-5.40） |
-0.118*** （-5.52） |
-0.118*** （-5.51） |
-0.110*** （-5.14） |
-0.110*** （-5.15） |
|
SS |
0.435*** （19.48） |
0.442*** （18.99） |
0.446*** （19.07） |
0.439*** （19.57） |
0.439*** （19.58） |
|
Moderator Variable |
|
|
|
|
|
|
SOC |
0.071*** （3.57） |
0.068*** （3.37） |
0.081*** （3.74） |
0.071*** （3.55） |
0.071*** （3.55） |
|
SLS |
0.091 （1.54） |
0.108* （1.79） |
0.110* （1.83） |
0.100* （1.67） |
0.099* （1.65） |
|
Independent Variable |
|
|
|
|
|
|
PCS |
|
-0.054*** （-2.63） |
-0.051** （-2.48） |
|
|
|
SMO |
|
|
|
0.046** （2.37） |
0.043** （2.13） |
|
Interactive Term |
|
|
|
|
|
|
PCS*SOC |
|
|
0.038* （1.65） |
|
|
|
SMO*SLS |
|
|
|
|
0.042 （0.58） |
|
R² |
0.1481 |
0.1457 |
0.1467 |
0.1520 |
0.1521 |
|
F |
59.31 |
49.90 |
44.70 |
52.98 |
47.12 |
|
N |
2396 |
2350 |
2350 |
2374 |
2374 |
Table 4. Regression results.
Note: ***, **, * represents p < 0.01, p < 0.05, p < 0.1 respectively.
Table 5. Hypotheses and whether hypotheses are verified.
|
|
Hypotheses |
Whether Hypotheses are Verified |
|
Hypothesis 1 |
Parent company shareholding has a negative impact on subsidiary responsive innovation. |
YES |
|
Hypothesis 2 |
The lower the degree of separation between ownership and control rights of the actual controllers, the stronger the negative impact of parent company shareholding on subsidiary responsive innovation. |
YES |
|
Hypothesis 3 |
Subsidiary managerial ownership has a positive impact on subsidiary responsive innovation. |
YES |
|
Hypothesis 4 |
The relatively centralized leadership structure of subsidiaries will strengthen the positive impact of managerial ownership on responsive innovation. |
NO |
4.3. Further Analysis
The external institutional environment (IE) reflects the living conditions of enterprises, vitally influencing the development of enterprises. The previous section mainly considered the moderating effect of internal governance factors such as the separation of ownership and control and leadership structure on listed companies' responsive innovation behavior, but the discussion about moderating effect of the institutional environment factor may be limited. In order to make the research more comprehensive, this paper further analyzes the effect of institutional environment, an external factor, on responsive innovation behavior. It is hoped that through statistical analysis of the relationship between responsive innovation behavior and institutional environment, the role of institutional environment in responsive innovation decision-making of listed companies will be investigated.
The measurement of the institutional environment refers to the evaluation of the overall progress of the market-oriented reform in China's provinces in China Sub-province Market Index Report (2016), which includes factors such as the relationship between the government and the market, the development of non-state-owned economy, the developing level of product market, the developing level of factor market, the development of market intermediary organizations and the legal institutional environment, and can relatively reasonably reflect the institutional environment currently faced by China's listed companies.
On the basis of the previous content, this paper maintains the original explanatory variables and control variables, and takes the institutional environment as a moderator variable to be included in the analysis. The specific operation is to add the interaction term between the parent company shareholding and the institutional environment on the basis of model M2, and add the interaction term between managerial ownership and institutional environment on the basis of model M4.
M6 in Table 6 shows that there is a significant positive correlation between the interaction term and responsive innovation (p < 0.05), with a coefficient of 0.050 and a goodness of fit of the model of 0.154. It means that the improvement of external institutional environment will weaken the negative impact of parent company shareholding on subsidiary responsive innovation. The reason may be that the improvement of external institutional environment reduces the legitimacy challenge of innovation, augmenting the probability of success of responsive innovation behavior, decreasing the risk of parent company, eventually inducing more responsive innovation behavior.
M7 in Table 6 reports that there is a significant positive correlation between the interaction term and responsive innovation (p < 0.01), with a coefficient of - 0.102 and a goodness of fit of 0.161. It shows that a high-level external institutional environment will weaken the positive impact of managerial ownership on subsidiary responsive innovation. The improvement of the external institutional environment can reduce the legal challenge of innovation, decreasing the risks borne by the parent company, enabling the parent company to carry out more innovation. However, at the same time, with the increase of the institutional environment, more companies participate in the innovation interaction. The generalization of innovation interaction makes it difficult for innovation behavior to reflect the efforts of managers, and the enthusiasm of managers to promote responsive innovation behavior also decreases.
|
Table 6 Further analysis. |
||
|
Variable |
Responsive Innovation |
|
|
M6 |
M7 |
|
|
Constant Term |
-0.022 （-0.92） |
-0.004 （-0.16） |
|
Control Variable |
|
|
|
PC |
0.106** （2.31） |
0.102** （2.24） |
|
SSB |
-0.024 （-1.13） |
-0.024 （-1.11） |
|
ISB |
-0.003 （-0.15） |
0.008 （0.42） |
|
ALRS |
-0.100*** （-4.63） |
-0.095*** （-4.37） |
|
SS |
0.437*** （18.52） |
0.434*** （19.20） |
|
Moderator Variable |
|
|
|
SOC |
0.070*** （3.42） |
0.070*** （3.48） |
|
SLS |
0.082 （1.36） |
0.077 （1.29） |
|
Institutional Environment（IE） |
0.080*** （4.07） |
0.059*** （2.92） |
|
Independent Variable |
|
|
|
PCS |
-0.041** （-1.98） |
|
|
SMO |
|
0.121*** （3.60） |
|
Interactive Term |
|
|
|
PCS*IE |
0.050** （2.51） |
|
|
SMO*IE |
|
-0.102*** （-3.16） |
|
R² |
0.154 |
0.161 |
|
F |
42.20 |
44.91 |
|
N |
2327 |
2349 |
Note: ***, **, * represents p < 0.01, p < 0.05, p < 0.1 respectively.The value of t is in parentheses.
Thank you very much for your affirmation and guidance.This is our revision instructions according to your requirements. We have also made specific revisions in the manuscript. Please review them. If you have any questions, please point out that we will accept and revise them with open mind,Thanks for the hard work during the review,your comments and guidance are all of great important value for us , thanks so much and we wish you all the best.
Sincerely yours
Guiyu Bai
Business School
University of Jinan
Jinan 250002,China
TEL: +86 13791109882
Emai: [email protected]
Author Response File: 
Author Response.doc
Reviewer 2 Report
Authors realize an interesting papers focused on Differentiated Impact Mechanism of Parent Company Shareholding and Managerial Ownership on Subsidiary Responsive Innovation.
The paper seems interesting but requires important changes before publication:
a. a proofediting is required
b. the literature review section must be improved (see papers below)
c. the abstract must be changed. In particular, I suggest to define the aim of this research and to consider only few but important sentences. In this moment the abstract isn't clear
d. define better the sample and the reasons of this sample
e. clarify the model selected.
PAPERS SUGGESTED
Majid Ashrafi (2019), Nonlinear relationship between institutional investors' ownership and capital structure: evidence from Iranian firms, International Journal of Managerial and Financial Accounting, Vol. 11, No. 1, pp. 1-19,DOI: 10.1504/IJMFA.2019.097827
Mario Ossorio (2018), Does R&D investment affect export intensity? The moderating effect of ownership, Vol. 10, No. 1, pp. 65-83, DOI: 10.1504/IJMFA.2018.091075
Ika Utami Widyaningsih; Ardi Gunardi; Matteo Rossi; Rahmawati Rahmawati (2017), Expropriation by the controlling shareholders on firm value in the context of Indonesia: corporate governance as moderating variable, International Journal of Managerial and Financial Accounting, Vol. 9, No. 4, pp 322-337, DOI: 10.1504/IJMFA.2017.089062
M Rossi, G Festa, L Solima, S Popa (2017), Financing knowledge-intensive enterprises: evidence from CVCs in the US, The Journal of Technology Transfer, Vol. 42, No. 2, pp. 338-353
M Rossi, M Nerino, A Capasso (2015), Corporate governance and financial performance of Italian listed firms. The results of an empirical research, Corporate Ownership & Control, Vol. 12 (2), 628-643
Author Response
Response to Reviewer 2 Comments
Dear Professor:
Many thanks for your comments about our paper sustainability-589761. Thank you very much for your affirmation and guidance. Overall the comments have been fair, encouraging and constructive. We have learned much from it.After carefully studying the reviewer’ comments and your advice, we have made corresponding changes to the paper. Our response of the comments is as follows:
Point 1: A proofediting is required.
Response 1: According to your advice, we have made carefully proofediting of the article. In the process of proofediting, we have found some problems, including individual sentence modification, revision of words, formatting issues etc. These modifications are reflected in the way of revision mark.
Point 2: The literature review section must be improved (see papers below)
Response 2: The literature review is improved according to your advice , and articles suggested by the reviewer are cited to improved the literature review section.Please check the improved concrete content in the manuscript,and the revised content we have made marks.
The revisions were clearly highlighted, and we used the "Track Changes" function in Microsoft Word, so that changes are easily visible. Please check the revision,thanks so much.
Point 3: The abstract must be changed. In particular, I suggest to define the aim of this research and to consider only few but important sentences. In this moment the abstract isn't clear
Response 3: According to your advice, we have changed our abstract we clearly point out the research purpose of the paper and simplify the report of the results, which make our abstract more concise and clear,please check is as follows:
Abstract: Under the dynamic competition situation, the innovation competition interaction between enterprises will take the form of mutual responding, while the formulation and implementation of responsive innovation strategy will be influenced by both shareholders and managers in the principal-agent relationship. In our research, we try to understand how the difference of governance logic between shareholders and managers affects innovation interaction strategy of enterprises. In order to achieve this research goal, this study takes all eligible listed companies (from 2007 to 2016) in China's stock market as samples. The results show that the parent company shareholding has a negative impact on the subsidiary responsive innovation, while companies whose managers hold more shares select the relatively positive strategy responsive innovation. Moreover, the degree of separation between ownership and control rights and the external institutional environment can moderate the above relationship. Relevant conclusions can provide some reference value for the formulation of responsive innovation decision of listed companies, and provide new insights for the design of parent-subsidiary corporate governance structure.
Point 4: Define better the sample and the reasons of this sample.
Response 4: Thank you for your careful guidance,we define the sample of the article more clearly and give the reason for using this sample,hope this may make the Research Design part more substantial.the specific content is as follows:
3.1. Sample Selection and Data Collection
This paper selects listed companies of enterprise groups in Shanghai and Shenzhen stock markets as the research object. There are several reasons for this: First of all, listed companies of enterprise groups account for the majority of listed companies in Shanghai and Shenzhen stock markets in China, so they are representative to a certain extent; Second, in the same listed company, natural person shareholders have complicated connections, and there is a common phenomenon that multiple natural person shareholders constitute interest groups. At this time, it is difficult to count the major shareholders' shareholdings; Third, there may be some differences between the natural person shareholding and the parent company shareholding. Selecting listed companies of enterprise groups as research objects is conducive to controlling such differences.
Referring to the division of the company of enterprise groups in existing literature[30], this paper takes all listed companies(from 2007 to 2016) in Shanghai and Shenzhen stock markets as the basic samples, and excludes the following samples:
(1) Financial industry companies
(2) Special treatment and delisted companies
(3) Samples with missing data
(4) Companies whose direct controller is not a corporation
This paper selects 2007-2016 as the observation period of the sample. There are several reasons for this: First of all,the measurement data of responsive innovation of listed companies are taken from the "research and development costs" of listed companies. The "New Accounting Standards" implemented since 2007 require enterprises to disclose research and development information, laying a foundation for the availability of key data. On the other hand, it is because Article33 of the 2007 revised Guidelines on the content and format of corporate information disclosure for publicly issued securities No.2 by the CSRC requires that "companies should remind investors of future corporate development opportunities and challenges, business plans and research and development plans for the new year should be disclosed". Under this background, more and more listed companies have disclosed research and development plans. Third, the paper takes into account the availability of data and the requirement of sample size for large sample studies.
The basic data reflecting the responsive innovation of listed companies in this study are selected from the annual research and development expenses of enterprises disclosed in Wind database, and the data of parent company shareholding, subsidiary company managerial ownership and control variables are all selected from CSMAR database (CSMAR database is an economic and financial database developed from the needs of academic research).
Point 5: Clarify the model selected.
Response 5: According to your advice,we clarify the model selected. We explain the model selected and the reason why we select it in section 3.3, please review as follows ,thanks so much for your hard work for our manuscript.
3.3. Models
In order to verify the research hypothesis proposed in this paper, the following multiple regression models are designed:
Model 1:
Model 2:
Model 3:
Model 4:
Model 5:
Among them, Control is the control variable group, c is the intercept term, ε represents the random disturbance term, j is the number for each control variable, bj represents the regression coefficient of each control variable, and a represents the regression coefficient of each independent variable. Model 1 is a regression model of the control variables and the dependent variable. Model 2 adds an independent variable to Model 1 to test the correlation between parent company shareholding and responsive innovation, that is, hypothesis H1. Based on model 2, model 3 adds an interaction term to test the moderating effect of the degree of separation between ownership and control, i.e. hypothesis H2. Model 4 adds another independent variable to model 1 to test the correlation between managerial ownership and responsive innovation, i.e. hypothesis H3. Based on model 4, model 5 adds another interaction term to test the moderating effect of leadership structure, i.e. hypothesis H4.
It should be noted that since some variables(such as the nature of the parent company shareholding) included in the article do not change with time, the article does not use the fixed effect model, but uses OLS regression method to analyse the data of the article.
Thank you very much for your affirmation and guidance.This is our revision instructions. We have also made specific revisions in the paper. Please review them. If you have any questions, please point out that we will accept and revise them with open mind,Wish you all the best. We are deeply inspired by your important and meaningful guidance and help. We tried our best to make modifications of the paper,please check it,if there is still room for modification, please point it out to us.Thank you so much.
Sincerely yours
Guiyu Bai
Business School
University of Jinan
Jinan 250002,China
TEL: +86 13791109882
Emai: [email protected]
Author Response File: Author Response.docx
Reviewer 3 Report
The paper is well written and well thought. However, in my opinion it lacks better reference to the existing body of the literature. The development of conceptual framework refers to the originators of agency theory (Jensen). However, the presentation of variables is very poor in this context.
I suggest Authors to develop the section that explains the variables by providing a reference to other works that measured these variables in similar (or the same way). Currently, the proxies of variables come out of nowhere.
Moreover, as the problem of ownership and agency theory implications has been studied in numerous works, I recommend Authors to discuss their results in the context of the findings of the related previous studies.
It is not enough to state that there were mixed results before. It would be good to provide a list of studies (usually it has a form of a table) with the information on what was studied, how the variables were measured and what were the results. Alternatively, Authors may recall other works that have already presented the analysis of previous studies in this context.
In other words, I encourage Authors to explain in a broader way WHY they measure the variables in a given way, by referring to prior studies.
Author Response
Response to Reviewer 3 Comments
Dear Professor:
Thank you very much for your affirmation and guidance.We very much appreciate your careful reading of our manuscript and valuable suggestions. We have carefully considered the comments and have revised the manuscript accordingly. The comments can be summarized as follows:
Point 1: The paper is well written and well thought. However, in my opinion it lacks better reference to the existing body of the literature. The development of conceptual framework refers to the originators of agency theory (Jensen). However, the presentation of variables is very poor in this context.
Response 1: Thank you for your recognition of the paper and your valuable advice. According to your advice, the article enriched the references in the literature review in part 2. Literature Review and Hypothesis Development and the part of presentation of variables is also enriched with new literature. Please check the improved concrete content in the manuscript,and the revised content we have made marks.The revisions were clearly highlighted, and we used the "Track Changes" function in Microsoft Word, so that changes are easily visible. Please check the revision,thanks so much.
Point 2: I suggest Authors to develop the section that explains the variables by providing a reference to other works that measured these variables in similar (or the same way). Currently, the proxies of variables come out of nowhere.
Response 2: Thank you for your advice,we have developed the section that explains the variables by providing a reference to other works that measured these variables in similar.In order to ensure the quality of variables measurement, the article added various sources of measurement methods of the variables. Especially, we made a table to respond to why the control variables were used.
3.2. Variable Definition and Measurement
3.2.1. Dependent Variable
Subsidiary responsive innovation (SRI). Dynamic competition theory emphasizes the interaction between competitors in the same industry, whose core idea is that some enterprises will initiate certain competitive actions to promote or maintain their competitive position, while other enterprises in the industry will fight back against this competitive action[33].As a concept formed based on dynamic competition theory, the measurement of responsive innovation should reflect the responsive tendency of listed companies to the innovation competition situation in the industry. Based on this, we design the following formula:
In the formula, TIj,t represents the technological innovation investment of listed company j in a certain industry in t year, represents the average level of technological innovation investment in the industry to which the company j belongs in t-1 year . The ratio of the two reflects the responsive innovation behavior (i.e. SRIj,t) implemented by the listed company j in t year based on the average level of technological innovation in the industry in t-1 year. The larger the value of SRIj,t, the more positive the responsive innovation in the dynamic competition in that year.
3.2.2. Independent Variables
Parent company shareholding (PCS) is the proportion of the parent company shareholding in the total equity of the listed company.Subsidiary managerial ownership (SMO) is measured by the ratio of managerial ownership of listed companies to the total equity of listed companies. According to the existing research[34,35],the article measures the parent company shareholding with the proportion of the parent company shareholding in the total equity of the listed company, and measures the subsidiary managerial ownership with the ratio of the executive’s ownership of listed companies to the total equity of listed companies. With the improvement of their shareholding level, the degree of their embedding in the listed companies is constantly increasing. At this time, the interests of both are more closely linked with the listed companies. Under the condition that the difference between shareholders and managers is narrowed, the article hopes to further clarify the difference of governance logic between shareholders and managers by comparing their attitudes towards responsive innovation strategies, which may be helpful for developing the agency theory.
3.2.3. Moderating Variable
The degree of separation between ownership and control right(SOC) is the moderating variable. In this paper, the deviation degree between ownership and control of the actual controller is taken as one of th s. Referring to the measurement method in the existing literature[36,37], the variable is measured by the difference between control right and ownership. Specifically, control right is measured by the sum of the minimum shareholding ratio in each control chain, and ownership is measured by the sum of the product of shareholding proportions of each link in each control chain.
Subsidiary Leadership Structure (SLS). In this paper, the leadership structure of a subsidiary is taken as the second moderator variable. To measure the variable of subsidiary leadership structure, the article refers to the existing research[38]that study the power structure of companies, whose result is that the power structure of CEO duality will affect the the board’s involvement in strategic decision making. Thus, we construct the dummy variable SLS, defined as 1 for CEO duality, and 0 otherwise. The leadership structure of CEO duality endows listed company with a more centralized leadership structure, whereas the leadership structure of the separation between CEO and chairman of directors makes the power distribution within the company more balanced. Therefore, we believe that when this variable is set to 1, the decision-making process of CEO and other executives will be smoother.
3.2.4. Control Variable
Table 1. Source of control variables.
|
Research level |
Variables |
Research results |
Author |
|
Nature of equity |
Nature of the parent company shareholding(PC) |
The existence of state-owned shares is conducive to innovation. |
Choi et al.（2011）[39] Zhou et al.（2017）[40] |
|
Company characteristics |
Asset-liability ratio of subsidiaries(ALRS) |
The capital structure of an enterprise will affect innovation, moderated by enterprise scale and economic environment. |
Bartoloni（2013）[41] Li&Simerly（2002）[42] |
|
Size of Subsidiaries (SS) |
The number of patent applications is positively related to firm size |
Shefer&Frenkel（2005）[43] Hall&Ziedonis（2001）[44] |
|
|
Board characteristics |
Size of the subsidiary board of directors(SSB) |
Too many or too few board members are not conducive to innovation. |
Zahra et al.（2000）[45] |
|
Independence of subsidiary board of directors(ISB) |
Independent boards of directors are more effective in improving innovation. |
Balsmeier et al.（2017）[46] |
In addition, this paper also selects the factors that may affect the innovation behavior of listed companies, such as the nature of the parent company shareholding (PC), the independence of subsidiary board of directors (ISB), the size of subsidiary board of directors (SSB), the asset-liability ratio of the subsidiary (ALRS) and the size of the subsidiary (SS), as the control variables of this study. Hall and Ziedonis(2011) argue that the number of patent applications is positively related to firm size[44]. Therefore, Referring to existing literature[47],we control the variable of firm size, measured by the natural logarithm of total asset. We control the firm leverage, measured by the ratio of total liabilities to total assets of listed companies at the end of the year[41]. The nature of the parent company shareholding is also controlled, measured by a dummy variable[40]. Finally, the independence of subsidiary board of directors and the size of subsidiary board of directors are controlled, measured by the proportion of independent directors in the board of directors[48] and the number of the board of directors[45]. The specific definitions and measurement methods of each variable are shown in Table2.
Table 2. Definition and measurement of variables.
|
Variables |
Code |
Index |
|
Subsidiary Responsive Innovation（SRI） |
SRI |
A calculation formula is designed based on dynamic competition theory. |
|
Parent Company Shareholding |
PCS |
The proportion of parent company shareholiding to total equity of listed companies |
|
Subsidiary Managerial Ownership |
SMO |
The proportion of managerial ownership in total equity of listed companies |
|
The degree of Separation between Ownership and Control Right |
SOC |
The difference between control right and ownership of listed companies |
|
Leadership structure of subsidiaries |
SLS |
CEO duality is "1",otherwise "0". |
|
Nature of the parent company shareholding |
PC |
State-owned is "1" and non-state-owned is "0". |
|
Size of the subsidiary board of directors |
SSB |
Number of the Board of Directors of Listed Companies |
|
Independence of subsidiary board of directors |
ISB |
The proportion of independent directors in the board of directors of listed companies at the end of the year |
|
Asset-liability ratio of subsidiaries |
ALRS |
The ratio of total liabilities to total assets of listed companies at the end of the year |
|
Size of Subsidiaries |
SS |
The Logarithm of total assets of listed companies at the end of the year |
Point 3: Moreover, as the problem of ownership and agency theory implications has been studied in numerous works, I recommend Authors to discuss their results in the context of the findings of the related previous studies.
Response 3:
Thank you for your advice, as the problem of ownership and agency theory implications has been studied in numerous works, we accept your advice and discuss our results in the context of the findings of the related previous studies. In order to respond to your suggestion,we strengthened the interaction with the previous related research in the research design and the empirical results.
4.2. Multiple Regression Analysis
Based on the model designed above, the article uses statistical software to carry out regression analysis. The specific regression results are shown in Table 4. The regression results of model 1 show that there is a significant relationship between responsive innovation behavior and the nature of the parent company shareholding and the size of subsidiaries, which supports the existing research[39,40,43,44]. The above results also confirm one of the core ideas of the article: Taking risks is one of the conditions required for innovation, the state-owned nature and larger scale of enterprises enable enterprises to face the risks associated with innovation without fear of risks.
After controlling the relevant variables, model 2 adds the parent company shareholding as an explanatory variable. The results show that there is a significant correlation between the parent company shareholding and responsive innovation (p<0.01), with a regression coefficient of -0.054 and a goodness of fit of 0.148. The regression results of model 2 show that the parent company shareholding has a negative impact on responsive innovation, the higher the parent company shareholding, the lower the subsidiary responsive innovation level, Hypothesis 1 is thus verified. Innovation has high potential benefits and considerable risks[13,14].Enterprise groups have the characteristic of sharing risks, bring great innovation advantages to group companies. However, as the degree of connection between the parent company and the subsidiary company increases, the interest binding between the parent company and the subsidiary company further deepens, and the parent company can only disperse less risks, so it does not want the subsidiary company to take more risks.
The regression results of model 3 point out that under the condition of controlling variables such as the asset-liability ratio of subsidiaries and the size of subsidiaries, there is a significant positive correlation (p<0.1) between responsive innovation and the interaction term, with a coefficient of 0.038 and a goodness of fit of 0.147. This shows that, within the framework of the corporate group, the lower the degree of separation between ownership and control, the stronger the negative impact of the parent company shareholding on the subsidiary responsive innovation, Hypothesis 2 is thus verified. The higher degree of separation between control rights and cash flow rights leads to a complicated control chain between the actual controller and the listed company [21]. At this time, the parent company can take less risks under the same control rights, which also gives the parent company stronger motivation to support the innovation of subsidiaries.
After controlling the relevant variables, model 4 adds subsidiary managerial ownership as an explanatory variable. The results show that there is a significant correlation between subsidiary managerial ownership and responsive innovation (p<0.05), with a regression coefficient of 0.046 and a goodness of fit of 0.152. The regression results of model 4 show that subsidiary managerial ownership has a positive impact on responsive innovation. With the increase of subsidiary managerial ownership, the level of subsidiary responsive innovation will also increase, Hypothesis 3 is thus verified. With the improvement of the level of managerial ownership, innovation becomes profitable. Successful innovation can enhance the value of the enterprise, thus benefiting the management who holds shares. Even if the innovation fails, the process of innovation can be a foil for the efforts of managers. Therefore, with the increase of shareholding level, managers are also more inclined to promote innovation in a company.
The regression results of model 5 show that under the condition of controlling variables such as subsidiary asset-liability ratio and subsidiary size, there is no significant correlation between the interaction term and responsive innovation, Hypothesis 4 has not been verified. The hypotheses proposed in this paper have been verified partially, See Table 5 for details.
Table 4. Regression results.
|
Variable |
Responsive Innovation |
||||
|
M1 |
M2 |
M3 |
M4 |
M5 |
|
|
Constant Term |
-0.019 （-0.83） |
-0.025 （-1.06） |
-0.021 （-0.89） |
-0.024 （-1.04） |
-0.024 （-1.05） |
|
Control Variable |
|
|
|
|
|
|
PC |
0.079* （1.76） |
0.087* （1.92） |
0.084* （1.85） |
0.090** （1.98） |
0.090** （1.99） |
|
SSB |
-0.028 （-1.31） |
-0.026 （-1.23） |
-0.025 （-1.19） |
-0.027 （-1.28） |
-0.027 （-1.28） |
|
ISB |
0.001 （0.03） |
-0.002 （-0.12） |
-0.002 （-0.11） |
0.008 （0.39） |
0.007 （0.37） |
|
ALRS |
-0.115*** （-5.40） |
-0.118*** （-5.52） |
-0.118*** （-5.51） |
-0.110*** （-5.14） |
-0.110*** （-5.15） |
|
SS |
0.435*** （19.48） |
0.442*** （18.99） |
0.446*** （19.07） |
0.439*** （19.57） |
0.439*** （19.58） |
|
Moderator Variable |
|
|
|
|
|
|
SOC |
0.071*** （3.57） |
0.068*** （3.37） |
0.081*** （3.74） |
0.071*** （3.55） |
0.071*** （3.55） |
|
SLS |
0.091 （1.54） |
0.108* （1.79） |
0.110* （1.83） |
0.100* （1.67） |
0.099* （1.65） |
|
Independent Variable |
|
|
|
|
|
|
PCS |
|
-0.054*** （-2.63） |
-0.051** （-2.48） |
|
|
|
SMO |
|
|
|
0.046** （2.37） |
0.043** （2.13） |
|
Interactive Term |
|
|
|
|
|
|
PCS*SOC |
|
|
0.038* （1.65） |
|
|
|
SMO*SLS |
|
|
|
|
0.042 （0.58） |
|
R² |
0.1481 |
0.1457 |
0.1467 |
0.1520 |
0.1521 |
|
F |
59.31 |
49.90 |
44.70 |
52.98 |
47.12 |
|
N |
2396 |
2350 |
2350 |
2374 |
2374 |
Note: ***, **, * represents p < 0.01, p < 0.05, p < 0.1 respectively.
Table 5. Hypotheses and whether hypotheses are verified.
|
|
Hypotheses |
Whether Hypotheses are Verified |
|
|
Hypothesis 1 |
Parent company shareholding has a negative impact on subsidiary responsive innovation. |
YES |
|
|
Hypothesis 2 |
The lower the degree of separation between ownership and control rights of the actual controllers, the stronger the negative impact of parent company shareholding on subsidiary responsive innovation. |
YES |
|
|
Hypothesis 3 |
Subsidiary managerial ownership has a positive impact on subsidiary responsive innovation. |
YES |
|
|
|
Hypothesis 4 |
The relatively centralized leadership structure of subsidiaries will strengthen the positive impact of managerial ownership on responsive innovation. |
NO |
4.3. Further Analysis
The external institutional environment (IE) reflects the living conditions of enterprises, vitally influencing the development of enterprises. The previous section mainly considered the moderating effect of internal governance factors such as the separation of ownership and control and leadership structure on listed companies' responsive innovation behavior, but the discussion about moderating effect of the institutional environment factor may be limited. In order to make the research more comprehensive, this paper further analyzes the effect of institutional environment, an external factor, on responsive innovation behavior. It is hoped that through statistical analysis of the relationship between responsive innovation behavior and institutional environment, the role of institutional environment in responsive innovation decision-making of listed companies will be investigated.
The measurement of the institutional environment refers to the evaluation of the overall progress of the market-oriented reform in China's provinces in China Sub-province Market Index Report (2016), which includes factors such as the relationship between the government and the market, the development of non-state-owned economy, the developing level of product market, the developing level of factor market, the development of market intermediary organizations and the legal institutional environment, and can relatively reasonably reflect the institutional environment currently faced by China's listed companies.
On the basis of the previous content, this paper maintains the original explanatory variables and control variables, and takes the institutional environment as a moderator variable to be included in the analysis. The specific operation is to add the interaction term between the parent company shareholding and the institutional environment on the basis of model M2, and add the interaction term between managerial ownership and institutional environment on the basis of model M4.
M6 in Table 6 shows that there is a significant positive correlation between the interaction term and responsive innovation (p < 0.05), with a coefficient of 0.050 and a goodness of fit of the model of 0.154. It means that the improvement of external institutional environment will weaken the negative impact of parent company shareholding on subsidiary responsive innovation. The reason may be that the improvement of external institutional environment reduces the legitimacy challenge of innovation, augmenting the probability of success of responsive innovation behavior, decreasing the risk of parent company, eventually inducing more responsive innovation behavior.
M7 in Table 6 reports that there is a significant positive correlation between the interaction term and responsive innovation (p < 0.01), with a coefficient of - 0.102 and a goodness of fit of 0.161. It shows that a high-level external institutional environment will weaken the positive impact of managerial ownership on subsidiary responsive innovation. The improvement of the external institutional environment can reduce the legal challenge of innovation, decreasing the risks borne by the parent company, enabling the parent company to carry out more innovation. However, at the same time, with the increase of the institutional environment, more companies participate in the innovation interaction. The generalization of innovation interaction makes it difficult for innovation behavior to reflect the efforts of managers, and the enthusiasm of managers to promote responsive innovation behavior also decreases.
|
Table 6 Further analysis. |
||
|
Variable |
Responsive Innovation |
|
|
M6 |
M7 |
|
|
Constant Term |
-0.022 （-0.92） |
-0.004 （-0.16） |
|
Control Variable |
|
|
|
PC |
0.106** （2.31） |
0.102** （2.24） |
|
SSB |
-0.024 （-1.13） |
-0.024 （-1.11） |
|
ISB |
-0.003 （-0.15） |
0.008 （0.42） |
|
ALRS |
-0.100*** （-4.63） |
-0.095*** （-4.37） |
|
SS |
0.437*** （18.52） |
0.434*** （19.20） |
|
Moderator Variable |
|
|
|
SOC |
0.070*** （3.42） |
0.070*** （3.48） |
|
SLS |
0.082 （1.36） |
0.077 （1.29） |
|
Institutional Environment（IE） |
0.080*** （4.07） |
0.059*** （2.92） |
|
Independent Variable |
|
|
|
PCS |
-0.041** （-1.98） |
|
|
SMO |
|
0.121*** （3.60） |
|
Interactive Term |
|
|
|
PCS*IE |
0.050** （2.51） |
|
|
SMO*IE |
|
-0.102*** （-3.16） |
|
R² |
0.154 |
0.161 |
|
F |
42.20 |
44.91 |
|
N |
2327 |
2349 |
Note: ***, **, * represents p < 0.01, p < 0.05, p < 0.1 respectively.The value of t is in parentheses.
Point 4: It is not enough to state that there were mixed results before. It would be good to provide a list of studies (usually it has a form of a table) with the information on what was studied, how the variables were measured and what were the results. Alternatively, Authors may recall other works that have already presented the analysis of previous studies in this context.
Response 4: According to your advice, the article recalled more papers in related fields. We hope we can enrich and support our research by referencing these papers. Literatures with the information on what was studied, how the variables were measured and what were the results is also added in our manuscript,please check the related content in the manuscript.
Point 5: In other words, I encourage Authors to explain in a broader way WHY they measure the variables in a given way, by referring to prior studies.
Response 5: According to your advice, we adopted broader methods (including citing previous literature and using tables, etc.) to explain the measuring methods of the variables in the article.Please check the new third part of the manuscript as follows.
3.1. Sample Selection and Data Collection
This paper selects listed companies of enterprise groups in Shanghai and Shenzhen stock markets as the research object. There are several reasons for this: First of all, listed companies of enterprise groups account for the majority of listed companies in Shanghai and Shenzhen stock markets in China, so they are representative to a certain extent; Second, in the same listed company, natural person shareholders have complicated connections, and there is a common phenomenon that multiple natural person shareholders constitute interest groups. At this time, it is difficult to count the major shareholders' shareholdings; Third, there may be some differences between the natural person shareholding and the parent company shareholding. Selecting listed companies of enterprise groups as research objects is conducive to controlling such differences.
Referring to the division of the company of enterprise groups in existing literature[30], this paper takes all listed companies(from 2007 to 2016) in Shanghai and Shenzhen stock markets as the basic samples, and excludes the following samples:
(1) Financial industry companies
(2) Special treatment and delisted companies
(3) Samples with missing data
(4) Companies whose direct controller is not a corporation
This paper selects 2007-2016 as the observation period of the sample. There are several reasons for this: First of all,the measurement data of responsive innovation of listed companies are taken from the "research and development costs" of listed companies. The "New Accounting Standards" implemented since 2007 require enterprises to disclose research and development information, laying a foundation for the availability of key data. On the other hand, it is because Article33 of the 2007 revised Guidelines on the content and format of corporate information disclosure for publicly issued securities No.2 by the CSRC requires that "companies should remind investors of future corporate development opportunities and challenges, business plans and research and development plans for the new year should be disclosed". Under this background, more and more listed companies have disclosed research and development plans. Third, the paper takes into account the availability of data and the requirement of sample size for large sample studies.
The basic data reflecting the responsive innovation of listed companies in this study are selected from the annual research and development expenses of enterprises disclosed in Wind database, and the data of parent company shareholding, subsidiary company managerial ownership and control variables are all selected from CSMAR database (CSMAR database is an economic and financial database developed from the needs of academic research).
3.2. Variable Definition and Measurement
3.2.1. Dependent Variable
Subsidiary responsive innovation (SRI). Dynamic competition theory emphasizes the interaction between competitors in the same industry, whose core idea is that some enterprises will initiate certain competitive actions to promote or maintain their competitive position, while other enterprises in the industry will fight back against this competitive action[33].As a concept formed based on dynamic competition theory, the measurement of responsive innovation should reflect the responsive tendency of listed companies to the innovation competition situation in the industry. Based on this, we design the following formula:
In the formula, TIj,t represents the technological innovation investment of listed company j in a certain industry in t year, represents the average level of technological innovation investment in the industry to which the company j belongs in t-1 year . The ratio of the two reflects the responsive innovation behavior (i.e. SRIj,t) implemented by the listed company j in t year based on the average level of technological innovation in the industry in t-1 year. The larger the value of SRIj,t, the more positive the responsive innovation in the dynamic competition in that year.
3.2.2. Independent Variables
Parent company shareholding (PCS) is the proportion of the parent company shareholding in the total equity of the listed company.Subsidiary managerial ownership (SMO) is measured by the ratio of managerial ownership of listed companies to the total equity of listed companies. According to the existing research[34,35],the article measures the parent company shareholding with the proportion of the parent company shareholding in the total equity of the listed company, and measures the subsidiary managerial ownership with the ratio of the executive’s ownership of listed companies to the total equity of listed companies. With the improvement of their shareholding level, the degree of their embedding in the listed companies is constantly increasing. At this time, the interests of both are more closely linked with the listed companies. Under the condition that the difference between shareholders and managers is narrowed, the article hopes to further clarify the difference of governance logic between shareholders and managers by comparing their attitudes towards responsive innovation strategies, which may be helpful for developing the agency theory.
3.2.3. Moderating Variable
The degree of separation between ownership and control right(SOC) is the moderating variable. In this paper, the deviation degree between ownership and control of the actual controller is taken as one of th s. Referring to the measurement method in the existing literature[36,37], the variable is measured by the difference between control right and ownership. Specifically, control right is measured by the sum of the minimum shareholding ratio in each control chain, and ownership is measured by the sum of the product of shareholding proportions of each link in each control chain.
Subsidiary Leadership Structure (SLS). In this paper, the leadership structure of a subsidiary is taken as the second moderator variable. To measure the variable of subsidiary leadership structure, the article refers to the existing research[38]that study the power structure of companies, whose result is that the power structure of CEO duality will affect the the board’s involvement in strategic decision making. Thus, we construct the dummy variable SLS, defined as 1 for CEO duality, and 0 otherwise. The leadership structure of CEO duality endows listed company with a more centralized leadership structure, whereas the leadership structure of the separation between CEO and chairman of directors makes the power distribution within the company more balanced. Therefore, we believe that when this variable is set to 1, the decision-making process of CEO and other executives will be smoother.
3.2.4. Control Variable
Table 1. Source of control variables.
|
Research level |
Variables |
Research results |
Author |
|
Nature of equity |
Nature of the parent company shareholding(PC) |
The existence of state-owned shares is conducive to innovation. |
Choi et al.（2011）[39] Zhou et al.（2017）[40] |
|
Company characteristics |
Asset-liability ratio of subsidiaries(ALRS) |
The capital structure of an enterprise will affect innovation, moderated by enterprise scale and economic environment. |
Bartoloni（2013）[41] Li&Simerly（2002）[42] |
|
Size of Subsidiaries (SS) |
The number of patent applications is positively related to firm size |
Shefer&Frenkel（2005）[43] Hall&Ziedonis（2001）[44] |
|
|
Board characteristics |
Size of the subsidiary board of directors(SSB) |
Too many or too few board members are not conducive to innovation. |
Zahra et al.（2000）[45] |
|
Independence of subsidiary board of directors(ISB) |
Independent boards of directors are more effective in improving innovation. |
Balsmeier et al.（2017）[46] |
In addition, this paper also selects the factors that may affect the innovation behavior of listed companies, such as the nature of the parent company shareholding (PC), the independence of subsidiary board of directors (ISB), the size of subsidiary board of directors (SSB), the asset-liability ratio of the subsidiary (ALRS) and the size of the subsidiary (SS), as the control variables of this study. Hall and Ziedonis(2011) argue that the number of patent applications is positively related to firm size[44]. Therefore, Referring to existing literature[47],we control the variable of firm size, measured by the natural logarithm of total asset. We control the firm leverage, measured by the ratio of total liabilities to total assets of listed companies at the end of the year[41]. The nature of the parent company shareholding is also controlled, measured by a dummy variable[40]. Finally, the independence of subsidiary board of directors and the size of subsidiary board of directors are controlled, measured by the proportion of independent directors in the board of directors[48] and the number of the board of directors[45]. The specific definitions and measurement methods of each variable are shown in Table2.
Table 2. Definition and measurement of variables.
|
Variables |
Code |
Index |
|
Subsidiary Responsive Innovation（SRI） |
SRI |
A calculation formula is designed based on dynamic competition theory. |
|
Parent Company Shareholding |
PCS |
The proportion of parent company shareholiding to total equity of listed companies |
|
Subsidiary Managerial Ownership |
SMO |
The proportion of managerial ownership in total equity of listed companies |
|
The degree of Separation between Ownership and Control Right |
SOC |
The difference between control right and ownership of listed companies |
|
Leadership structure of subsidiaries |
SLS |
CEO duality is "1",otherwise "0". |
|
Nature of the parent company shareholding |
PC |
State-owned is "1" and non-state-owned is "0". |
|
Size of the subsidiary board of directors |
SSB |
Number of the Board of Directors of Listed Companies |
|
Independence of subsidiary board of directors |
ISB |
The proportion of independent directors in the board of directors of listed companies at the end of the year |
|
Asset-liability ratio of subsidiaries |
ALRS |
The ratio of total liabilities to total assets of listed companies at the end of the year |
|
Size of Subsidiaries |
SS |
The Logarithm of total assets of listed companies at the end of the year |
3.3. Models
In order to verify the research hypothesis proposed in this paper, the following multiple regression models are designed:
Model 1:
Model 2:
Model 3:
Model 4:
Model 5:
Among them, Control is the control variable group, c is the intercept term, ε represents the random disturbance term, j is the number for each control variable, bj represents the regression coefficient of each control variable, and a represents the regression coefficient of each independent variable. Model 1 is a regression model of the control variables and the dependent variable. Model 2 adds an independent variable to Model 1 to test the correlation between parent company shareholding and responsive innovation, that is, hypothesis H1. Based on model 2, model 3 adds an interaction term to test the moderating effect of the degree of separation between ownership and control, i.e. hypothesis H2. Model 4 adds another independent variable to model 1 to test the correlation between managerial ownership and responsive innovation, i.e. hypothesis H3. Based on model 4, model 5 adds another interaction term to test the moderating effect of leadership structure, i.e. hypothesis H4.
It should be noted that since some variables(such as the nature of the parent company shareholding) included in the article do not change with time, the article does not use the fixed effect model, but uses OLS regression method to analyse the data of the article.
This is our revision instructions according to your requirements. We have also made specific revisions in the paper. Please review them the manuscript. If you have any questions, please point out that we will accept and revise them with open mind,Thanks for the hard work during the review,your comments and guidance are all of great important value for us , thanks so much and we wish you all the best.
Sincerely yours
Guiyu Bai
Business School
University of Jinan
Jinan 250002,China
TEL: +86 13791109882
Emai: [email protected]
Author Response File: Author Response.docx
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Reviewer 2 Report
This new version of the paper can be considered for publication
