A bittersweet phenomenon: The internal structure, functional mechanism, and effect of guanxi on firm performance

This paper explores the mechanism of guanxi and how it affects firm performance from a constructive perspective. It aims to contribute to the extant literature by investigating the negative side of guanxi and expounding on how guanxi functions, adversely impacting firm performance. Specifically, as guanxi grows, its negative effect leads to erosion of firm performance. Further, interorganizational trust and relationship-specific investment, as two potential mediators, can enhance and amplify the eroding effect of guanxi on firm performance.