Contact:
Eric Gedajlovic, SFU Beedie, erg@sfu.ca
Ross MacDonald-Allan, SFU Beedie, 778.782.9492, rossm@sfu.ca
Derek Moscato, SFU Beedie, 778.782.5038, derek_moscato@sfu.ca

Photo on Flickr

New research from Simon Fraser University’s Beedie School of Business suggests that entrepreneurs and managers might want to think twice before readily accepting offers of government investment in their companies.

The paper, Corporate Shareholdings and Organizational Ambidexterity in High-Tech SMEs: Evidence from a Transitional Economy, examines the case of Chinese high-tech small-to-medium sized enterprises (SMEs) and the role that government plays.

Authored by Beedie School of Business professor Eric Gedajlovic with colleagues Qing Cao (University of Connecticut) and Hongping Zhang (Shandong University), the research is published in the Journal of Business Venturing.

The researchers acknowledge that in today’s high growth economies globally – China being a relative case in point – SMEs are confronted with a myriad of business opportunities.

They suggest that the widespread practice in many transitional nations of having governments acquiring equity stakes in private sector SMEs is a double-edged sword.

“This is about the role that government plays in China fuelling entrepreneurial growth – but the costs also involved in undermining that growth,” said Gedajlovic.

“When government gets involved, it distorts the incentives in such a way that firms select opportunities that don’t make sense.”

The research indicates a negative relationship between government shareholdings and the adoption by executives of exploitative and/or explorative strategic orientations.

“While government share ownership in private sector SMEs may have the effect of insulating a firm from market pressures to focus their activities, it also appears to have implications regarding managerial incentives and decision-making quality, which result in a net negative effect on the likelihood that executives will perceive and act upon both exploitative and explorative opportunities.”

On the flipside, the researchers maintain that managerial share ownership is associated with a high level of commitment to effort-intensive decision comprehensiveness as well as ambidextrous strategic orientation. In other words, a balance of long and short terms needs is one of the outcomes of providing ownership incentives to managers in transitional economies.

Ultimately, Gedajlovic argues that on the basis of their evidence, “entrepreneurs in transitional economies should exercise considerable caution with respect to equity infusions from government agencies.”

Simon Fraser University is Canada's top-ranked comprehensive university and one of the top 50 universities in the world under 50 years old. With campuses in Vancouver, Burnaby and Surrey, B.C., SFU engages actively with the community in its research and teaching, delivers almost 150 programs to more than 30,000 students, and has more than 120,000 alumni in 130 countries.

-30-

Simon Fraser University: Engaging Students. Engaging Research. Engaging Communities.