Nonmarket Exchange Strategies, Formal Institutions, and Firm Performance: Evidence from China

• In Event: 4255 - Section on Economic Sociology Roundtables (1 hour)
  In Refereed Roundtable 60min: 10. Networks

Abstract

The existing literature shows that nonmarket exchange strategies, particularly network strategies, can fill institutional voids, thus facilitating firm/entrepreneurial performance in emerging markets. Yet, it is less clear how institutional voids affect the usage and performance of different network strategies. Focusing on two widely-adopted network strategies in China, i.e., guanxi-based exchange and broker-based exchange, this study examines this issue using data from a nationally representative survey of private entrepreneurs from 1994. It finds, first, that different types of institutional voids have different effects on two network strategies: Entrepreneurs rely more on broker-based exchange under higher uncertainty for accessing key resources and markets but more on guanxi-based exchange after encountering dissatisfied legal resolution of contractual disputes. Second, the effects of different network strategies on performance are contingent on the overall severity of the problem of institutional voids. On national average, both strategies facilitate entrepreneurial performance with broker-based exchange bringing higher performance. However, compared with guanxi-based exchange, broker-based exchange brings lower performance in regions with severe problem of institutional voids, but higher performance in regions where formal market institutions are relatively strong.

Author

• Wubiao Zhou, University of Birmingham