Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China

Based on a new institutional economy framework, this study examines the formation and economic consequences of social networks (guanxi) from the perspective of key suppliers and customers in China. Results show that commercial activities which depend on networks are determined by the institutional e...

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Main Author: Xiang Kong
Format: Article
Language:English
Published: Elsevier 2011-09-01
Series:China Journal of Accounting Research
Subjects:
Online Access:http://www.sciencedirect.com/science/article/pii/S1755309111000165
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spelling doaj-8ad9a26d74bd49c790bb4219c2b889852020-11-24T20:50:55ZengElsevierChina Journal of Accounting Research1755-30912011-09-014312113310.1016/j.cjar.2011.06.003Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in ChinaXiang KongBased on a new institutional economy framework, this study examines the formation and economic consequences of social networks (guanxi) from the perspective of key suppliers and customers in China. Results show that commercial activities which depend on networks are determined by the institutional environment. For example, companies that have lower accumulated social capital (less trust among people) and are subject to more government invention depend more on social network transactions than on the market. In addition, this study shows that network transactions can provide benefits to firms, especially in weak institutional environments. Networks can reduce transaction costs by reducing information asymmetry, i.e., increased network dependence is associated with lower credit costs and lower advertising and sales costs. Networks can also reduce the effect of industry shocks, especially negative shocks, by creating a bonding mechanism. This study contributes to our understanding of social networks in emerging markets by providing evidence on network transactions with key suppliers and customers and their influence on firms’ accounting behavior.http://www.sciencedirect.com/science/article/pii/S1755309111000165Social networkSocial capitalTransaction costsIndustry shocks
collection DOAJ
language English
format Article
sources DOAJ
author Xiang Kong
spellingShingle Xiang Kong
Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China
China Journal of Accounting Research
Social network
Social capital
Transaction costs
Industry shocks
author_facet Xiang Kong
author_sort Xiang Kong
title Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China
title_short Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China
title_full Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China
title_fullStr Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China
title_full_unstemmed Why are social network transactions important? Evidence based on the concentration of key suppliers and customers in China
title_sort why are social network transactions important? evidence based on the concentration of key suppliers and customers in china
publisher Elsevier
series China Journal of Accounting Research
issn 1755-3091
publishDate 2011-09-01
description Based on a new institutional economy framework, this study examines the formation and economic consequences of social networks (guanxi) from the perspective of key suppliers and customers in China. Results show that commercial activities which depend on networks are determined by the institutional environment. For example, companies that have lower accumulated social capital (less trust among people) and are subject to more government invention depend more on social network transactions than on the market. In addition, this study shows that network transactions can provide benefits to firms, especially in weak institutional environments. Networks can reduce transaction costs by reducing information asymmetry, i.e., increased network dependence is associated with lower credit costs and lower advertising and sales costs. Networks can also reduce the effect of industry shocks, especially negative shocks, by creating a bonding mechanism. This study contributes to our understanding of social networks in emerging markets by providing evidence on network transactions with key suppliers and customers and their influence on firms’ accounting behavior.
topic Social network
Social capital
Transaction costs
Industry shocks
url http://www.sciencedirect.com/science/article/pii/S1755309111000165
work_keys_str_mv AT xiangkong whyaresocialnetworktransactionsimportantevidencebasedontheconcentrationofkeysuppliersandcustomersinchina
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