One Bank, Two Cultural Identities”: a Case Study of Chinese and British Influence on the financial Practices of HSBC Bank Freda C
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University of Wollongong Thesis Collections University of Wollongong Thesis Collection University of Wollongong Year ”One bank, two cultural identities”: a case study of Chinese and British influence on the financial practices of HSBC bank Freda C. F Hui University of Wollongong Hui, Freda CF, ”One bank, two cultural identities”: a case study of Chinese and British influence on the financial practices of HSBC bank, PhD thesis, School of Accounting and Finance, University of Wollongong, 2008. http://ro.uow.edu.au/theses/348 This paper is posted at Research Online. http://ro.uow.edu.au/theses/348 “One bank, two cultural identities”: a case study of Chinese and British influence on the financial practices of HSBC Bank A thesis submitted in fulfilment of the requirements for the award of the degree: Doctor of Philosophy from UNIVERSITY OF WOLLONGONG by Freda C.F. Hui CPA, M.Com, B.Com School of Accounting and Finance 2008 i CERTIFICATION I, Freda, C.F. Hui, declare that this thesis, submitted in fulfilment of the requirements for the award of Doctor of Philosophy, in the School of Accounting and Finance, University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution. Freda Hui 18 November 2008 ii ACKNOWLEDGEMENTS I sincerely express my gratitude to my supervisors: Dr. Kathy Rudkin and the late Dr. Hemant Deo, for their patience, helpfulness, and assistance during the course of this study. This research would not have been possible without their invaluable expertise, academic support, and belief in my work and ability. I am so grateful for the time we’ve spent together and treasure the friendship they provided. I also wish to thank my family and friends for the support, love, and understanding they have given me throughout my studies. Special thanks to Kenneth, in Hong Kong, for his untiring tolerance and support in completing this thesis. Thanks also to all the staff from the School of Accounting and Finance at the University of Wollongong, and other colleagues I have met along the way, for their support and encouragement. iii ABSTRACT After over 150 years of British rule, Hong Kong transferred its sovereignty to the Republic of China in 1997 under the catchcry of “one country, two systems”. The most dominant bank in Hong Kong (1864-present) is the Hongkong and Shanghai Banking Corporation (HSBC). This thesis explains the ensuing impact of the political and cultural change on the disclosures and accountability of HSBC. HSBC’s accounting practices are not independent and self-contained. They are shaped by HSBC’s unique history and culture, and are dependent on societal expectations. Hong Kong became a British colony in 1842. The handover in 1997 brought to the fore differences in expectations and cross-cultural differences between the West and the East. Annual reports were increasingly used by the bank as a tool to legitimate HSBC with respect to societal expectations and maintain its reputation as a reliable “local” bank in Hong Kong. This study demonstrates how a bank uses financial reports politically to ensure survival and sustainability beyond the rhetoric of accountability. The contributions of the thesis are twofold. First, it theoretically develops links between Laughlin’s (1995) Middle Range Thinking (MRT) and Institutional theory (DiMaggio and Powell, 1983). Skeletal theory guides and facilitates the discourse necessary for analyses of political, economic, and social influences on accounting and banking. Secondly, this thesis applies methodology and methods novel to research in banking to enable a contextual understanding of the Asia Pacific regulatory environments. Both qualitative and quantitative methods of investigation iv are employed. Because of the complexity of the situation of HSBC, an inter- subjective approach to theorising is necessary to interrogate historical and cultural impacts. This thesis critiques the “one country, two systems” policy as it applies to the banking sector in Hong Kong. The case study of HSBC demonstrates that some significant events triggered the additional public disclosure in annual reports and public accountability in order for HSBC to legitimate itself to the new Hong Kong order and mainland China expectations. This new approach is valuable in this banking study because it gives a different perspective on acquiring banking knowledge. Blending Middle Range Thinking and Institutional theory is shown to compensate for the deficiencies in both theories. v TABLE OF CONTENTS Certification ................................................................................................................. i Acknowledgements.....................................................................................................ii Abstract ......................................................................................................................iii Table of contents......................................................................................................... v List of figures ............................................................................................................. ix Abbreviations ............................................................................................................xii Chapter 1 Introduction............................................................................................. 1 1. 1 The research site.......................................................................................... 2 1. 2 Identifying a theoretical framework for this research................................. 3 1. 3 Contributions of this thesis ......................................................................... 6 1. 4 Organization of this thesis........................................................................... 6 Chapter 2 Methodological issues............................................................................. 9 2. 1 Literature review ......................................................................................... 9 2. 2 Middle Range Thinking ............................................................................ 19 2.2.1 Positivist/Functionalist studies.......................................................... 22 2.2.2 Interpretive/ Relativistic studies........................................................ 28 2.2.3 Middle Range Thinking .................................................................... 30 2.2.4 The research approach of this thesis ................................................. 36 2. 3 The research site........................................................................................ 40 2. 4 Data gathering for this thesis .................................................................... 40 2. 5 Methods of data collection........................................................................ 41 2. 6 Text analysis ............................................................................................. 45 2. 7 Interviews.................................................................................................. 49 Chapter 3 Institutional elements and HSBC.......................................................... 52 3.1 Overview of institutional theory ..................................................................... 52 3.2 The origins of institutional theory................................................................... 53 3.3 Institutional elements ...................................................................................... 56 3.3.1 Definition of ‘institutions’ ....................................................................... 57 3.3.2 Institutional isomorphism ........................................................................ 58 3.3.3 Decoupling ............................................................................................... 62 3.3.4 Legitimacy ............................................................................................... 63 vi 3.3.5 The significance of the founding of an organization ............................... 64 3.4 Limitations of Institutional theory .................................................................. 65 3.4.1 Assumption of organizational passivity................................................... 65 3.4.2 Lack of explanation of how institutions change ...................................... 67 3.4.3 Neglect of the issues of power ................................................................. 69 3.4.4 Ignorance of the “micro” perspective ...................................................... 72 3.4.5 Problems with decoupling........................................................................ 73 3.5 Extension of Institutional theory..................................................................... 75 Chapter 4 Historical context .................................................................................. 78 4. 1 Historical influence ................................................................................... 78 4. 2 The institutional context of early Hongkong and Shanghai Banking Corporation ........................................................................................................... 79 4. 3 Birth of HSBC........................................................................................... 85 4.3.1 Founder’s influence – internal pressure ............................................ 89 4.3.2 Early financial reporting of HSBC...................................................