Eating, Drinking, and Karaoking: Rent-Appropriation of Knowledge- based Assets in China

We propose that a firm’s investments in guanxi through its business entertainment practices such as eating, drinking and karaoking with stakeholders, act as a unique rent-appropriation strategy to capture the value from its investments in knowledge- based assets (e.g., investments in research and development) in China. As substitutes for the formal systems which are inadequate in providing protection of the intellectual property rights, guanxi with stakeholders helps the firm protect its intellectual property from being infringed and appropriate more value from its research and development (R&D). Furthermore, the effect of such an appropriation strategy is strengthened for firms located in regions with intense imitation and infringement climate and in industries with high market uncertainty. Data on Chinese high- technology publicly listed firms provides support for these arguments.