Agency theory approach for the performance of returnee entrepreneurs

Abstract

A returnee entrepreneur playing an important role in China market is a notable phenomenon. While their advanced knowledge and overseas networking in developed countries have advantages over local counterparts, their lack of local knowledge and connection may mitigate their advantages. This study explores the research questions how and why external management control of returnee entrepreneur is inferior to local counterpart. Based on the data collected in year 2002 from Chinese technology venture companies in Zhongguancun Science Park (ZSP), we find that the performance of returnee entrepreneur’s firms is lower when they have more local subsidiaries and when they are owned by foreigners. It implies that returnee entrepreneurs may be less effective in management control over local subsidiaries which may indicate a low level of headquarters control. It also implies that foreign ownership gives rise to increase in agency conflicts between returnee entrepreneurs and foreign investors and thus has a negative impact on firms’ innovation performance.