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Firm Characteristics and Informal Governance of Business Operations in the PRD, China

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  • Frank Bickenbach
  • Wan-Hsin LIU

Abstract

This paper describes the Chinese economic and institutional reform process as a gradual transition of an informal, relation-based governance system into a more formal and rule-based governance system. The consequences of macro-level institutional reforms on the importance of personal relationships for the firm-level governance of business operations are discussed. Theoretical considerations based on the New Institutional Economics suggest that, in a transition economy such as China, companies’ incentives to reduce the reliance on personal relationships should depend on firm characteristics such as the age, size and the internationalization of the firm. We confront these suppositions with empirical data obtained from a company survey performed among 222 (electronics industry) companies operating in the PRD, China. From this we obtain some, though often weak, evidence in favor of the suppositions

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1728.

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Length: 34 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:kie:kieliw:1728

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Keywords: formal and informal institutions; relation-based governance; firm characteristics; China; company survey;

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  1. Jentzsch, Nicola, 2008. "An economic analysis of China's credit information monopoly," China Economic Review, Elsevier, vol. 19(4), pages 537-550, December.
  2. Frank Bickenbach & Wan-Hsin LIU, 2010. "The Role of Personal Relationships for Doing Business in the GPRD, China – Evidence from Hong Kong Electronics SMEs," Kiel Working Papers 1589, Kiel Institute for the World Economy.
  3. John Shuhe Li, 2003. "Relation-based versus Rule-based Governance: an Explanation of the East Asian Miracle and Asian Crisis," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 651-673, 09.
  4. Pranab Bardhan, 2005. "Institutions matter, but which ones?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(3), pages 499-532, 07.
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