Flexibility-Efficiency Tradeoff and Performance Implications Among Chinese SOEs

Abstract

This paper examines performance implications of the flexibility-efficiency tradeoff in the turbulent environment. We test the relationship between resource utilization and firm performance among the Chinese state owned enterprises (SOEs) during China’s economic transformation. The study finds that (1) overall efficiency enhances performance; (2) different measures of efficiency all exhibit curvilinear relationship with performance; (3) differences exist between high-efficiency and low-efficiency subgroups of firms. The results reveal that efficiency as well as flexibility has a positive impact on firm performance only within a certain range. Beyond a certain point, the cost of maintaining flexibility overwhelms the benefit, causing performance to decline.

Keywords: China, flexibility-efficiency tradeoff, resource-based view, dynamic capabilities, state owned enterprises