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How state and market logics influence firm strategy from within and outside? Evidence from Chinese financial intermediary firms

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  • Xiaoming He

    (East China University of Science & Technology)

  • Lin Cui

    (Australian National University)

  • Klaus E. Meyer

    (University of Western Ontario)

Abstract

We study how state and market logics, which operate both internal and external to the firm, jointly influence firm strategy. In the context of the Chinese financial intermediary industry, we argue that the level of state ownership in a firm has an inverted U-shaped relationship with the firm’s financial portfolio diversification. This is because firms prioritize financial investment options that serve the dominant logic. As a result, their financial portfolios are more diversified when the multiple logics are balanced than when either logic dominates. This relationship is attenuated by the prevalence of market logic in the regional institutional environment and amplified by industry regulation aimed at correcting market failure. We test these arguments using panel data of Chinese trust companies during a period of de-regulation and re-regulation and find empirical support for the moderated curvilinear effect of state ownership. Our findings demonstrate the relevance of the institutional logics to analyzing firms in contemporary China and highlight how institutional logics at multiple levels jointly shape corporate strategy.

Suggested Citation

  • Xiaoming He & Lin Cui & Klaus E. Meyer, 2022. "How state and market logics influence firm strategy from within and outside? Evidence from Chinese financial intermediary firms," Asia Pacific Journal of Management, Springer, vol. 39(2), pages 587-614, June.
    • Handle: RePEc:kap:asiapa:v:39:y:2022:i:2:d:10.1007_s10490-020-09739-5
    DOI: 10.1007/s10490-020-09739-5
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