Banalieva et al-2015-Strategic Management Journal

Strategic Management JournalStrat. Mgmt. J., 36: 1358–1377 (2015)

Published online EarlyView 9 July 2014 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2288Received 1 May 2013; Final revision received 30 April 2014

WHEN DO FAMILY FIRMS HAVE AN ADVANTAGEIN TRANSITIONING ECONOMIES? TOWARD ADYNAMIC INSTITUTION-BASED VIEW

ELITSA R. BANALIEVA,1* KIMBERLY A. EDDLESTON,2 andTHOMAS M. ZELLWEGER3

1 International Business & Strategy Group, D’Amore-McKim School of Business,Northeastern University, Boston, Massachusetts, U.S.A.2 Entrepreneurship & Innovation Group, D’Amore-McKim School of Business,Northeastern University, Boston, Massachusetts, U.S.A.3 Center for Family Business, University of St. Gallen, St. Gallen, Switzerland

We advance a dynamic institution-based view of the firm that extends the theory’s current focuson scope of pro-market reforms (degree of market liberalization in a given year) to consider howspeed of reforms (rate of market liberalization achieved over time) affects the performance offirms from transitioning economies. Utilizing a sample of public firms from Chinese provinces withvarying reform speeds, we find that while scope of reforms positively impacts firm performance,speed of reforms detracts from firm performance. We further find that while family firms havean advantage in gradually reforming provinces, non-family firms have an advantage in rapidlyreforming provinces. Thus, we extend the institution-based view across time (speed of reforms)and firms (family vs. non-family firms). Copyright © 2014 John Wiley & Sons, Ltd.

INTRODUCTION

The institution-based view of the firm has attractedgrowing attention in recent research (Gedajlovicet al., 2012; Peng, Wang, and Jiang, 2008). Part ofthis trend is motivated by a burgeoning interest inhow firms cope with changing institutional envi-ronments, particularly in transitioning economies(Aguilera and Crespi-Cladera, 2012; Hoskissonet al., 2000; Kim, Kim, and Hoskisson, 2010).Transitioning economies are characterized by inef-ficient markets, active government involvement,

Keywords: dynamic institution-based view; speed of pro–market reforms; family vs. non-family firms; transitioningeconomies; China*Correspondence to: Elitsa R. Banalieva, Gary GreggResearch Fellow, International Business & Strategy Group,D’Amore-McKim School of Business, Northeastern University,360 Huntington Avenue, 315C Hayden Hall, Boston, MA 02115,U.S.A. Email: [email protected]

Copyright © 2014 John Wiley & Sons, Ltd.

and high uncertainty (Xu and Meyer, 2013). Moststudies examining how the institutional environ-ment affects firm performance (Chari and David,2012; Cuervo-Cazurra and Dau, 2009; Park, Li,and Tse, 2006; Peng et al., 2008) have focused onscope of pro-market reforms, whereby pro-marketreforms refer to the structural policies that increasethe role of markets and curtail that of the state(Indart, 2004). Some of these studies show that agreater scope of pro-market reforms improves firmperformance (Cuervo-Cazurra and Dau, 2009; Parket al., 2006), while others question the persistenceof superior performance from a larger scope ofreforms (Chari and David, 2012).

In acknowledging these inconsistent findings,Kim et al. (2010) noted that solely focusing onscope of pro-market reforms (i.e., degree of marketliberalization in a year) is problematic because ittreats institutional change as a static event. What isneeded is a dynamic view of institutional change

Chinese Family Firms: A Dynamic Institution-Based View 1359

that captures the speed at which a transitioningeconomy moves toward a market-based system overtime. While the speed of pro-market reforms (i.e.,rate of market liberalization achieved over time) hasbeen the focus of country-level studies, its effect onfirm-level strategy remains underexplored (Godoyand Stiglitz, 2007; McMillan and Woodruff,2002). However, the optimum speed of pro-marketreforms for countries’ development has beencontested as some economists believe a slowerspeed is best as it allows for maximum adjustmentwith minimum stress (e.g., Godoy and Stiglitz,2007; Murrell, 1992), while others purport that afaster speed is preferable as it quickly eliminatesthe old and inefficient regime (e.g., Havrylyshyn,2007; Lipton et al., 1990). Accordingly, we offera dynamic institution-based view that answers thecall for research to consider how the rate of marketliberalization over time affects firm performance(Gedajlovic et al., 2012; Kim et al., 2010; Xu andMeyer, 2013). Our framework is tested withinChina since it is comprised of institutionallyheterogeneous provinces whereby the governmenthas withdrawn from the private sector more quicklyfrom some provinces than others (Caulfield, 2006;Park et al., 2006).

Additionally, researchers have suggested thatsome firms may be better able to adapt to insti-tutional changes than others (Kim et al., 2010;Xu and Meyer, 2013). For instance, it has beendebated whether family firms have an advantageor disadvantage in transitioning economies (Geda-jlovic et al., 2012). While some argue that familyfirms have an advantage because their social capitaland stability help to fill institutional voids (e.g.,Gedajlovic and Carney, 2010; Luo and Chung,2012; Miller et al., 2009), others argue that familyfirms are ill-equipped to compete in transitioningeconomies due to their resistance to change andemphasis on family control (e.g., Bertrand, Mehta,and Mullainathan, 2002; Claessens, Djankov, andLang, 2000). Our study attempts to reconcile theseviews by investigating when family vs. non-familyfirms benefit from different speeds of pro-marketreforms. In doing so, our study addresses gaps in theliterature on how institutions impact family firms(Liu, Yang, and Zhang, 2012) and how variations incorporate governance matter to firm performancein transitioning economies (Aguilera et al., 2008).

Our study makes several contributions. Theo-retically, we propose a dynamic institution-basedview that extends the theory’s traditional focus

on the static concept of scope of pro-marketreforms to consider the dynamic concept of speedof pro-market reforms. We also contribute to thefamily firm literature by investigating how familyand non-family firms perform under differentpro-market reform speeds. While prior research hasfocused on state-owned firms (Park et al., 2006) orforeign firms competing in China (Li et al., 2011a),little remains known about China’s burgeoningprivate sector (Ding, Zhang, and Zhang, 2008).

Empirically, we contribute to the institution-based view by developing an index of speed ofpro-market reforms that captures the rate of insti-tutional change over time while taking into accountthe scope of reforms. Our dynamic institution-basedview is tested using a longitudinal study design.Further, although research has analyzed institu-tional differences across countries (e.g., Arregleet al., 2013; Jiang and Peng, 2011; La Porta,Lopez-de-Silanes, and Shleifer, 1999), we focusinstead on sub-national differences among Chi-nese provinces. Our concentration on provincialdifferences is in line with research that stresseshow regional effects are pivotal in transitioningeconomies (Chan et al., 2010).

TOWARD A DYNAMICINSTITUTION-BASED VIEW OF THEFIRM

The institution-based view of the firm captures the“rules of the game” that constrain or enable firmbehavior (Meyer et al., 2009; North, 1990; Penget al., 2009). In transitioning economies, the institu-tional environment is plagued by institutional voids(economic conditions that inhibit competition andlead to arbitrary policy enforcement) (Hoskissonet al., 2000). These inefficiencies have led manytransitioning countries to adopt pro-market reformsaimed at creating a more market-based economy,with the state simply facilitating the commer-cial exchanges (Cuervo-Cazurra and Dau, 2009;Hoskisson et al., 2000; Ireland, Tihanyi, and Webb,2008; Kim et al., 2010; Park et al., 2006).

Pro-market reforms are structural policies aimedto decentralize and curtail state control in the mar-ket, reduce industry and trade barriers, minimizegovernment intervention in resource allocation,eliminate distortions in commodity markets, andincrease efficiency of factor markets (Indart, 2004;Park et al., 2006; Zhang and Tan, 2007). Thus,

Copyright © 2014 John Wiley & Sons, Ltd. Strat. Mgmt. J., 36: 1358–1377 (2015)DOI: 10.1002/smj

1360 E. R. Banalieva, K. A. Eddleston, and T. M. Zellweger

pro-market reforms are microeconomic policiesthat minimize the state’s intervention in allocatingthe economy’s resources and maximize the efficientuse of these resources by market players (Svejnar,1991).

Most research on pro-market reforms has ana-lyzed the effect on countries’ development, debat-ing if a greater or lesser scope of reforms is morebeneficial (Dollar and Kraay, 2004; Rodriguez andRodrik, 2001; Stiglitz, 2002). Only recently havestudies considered the effect of pro-market reformson firm performance (e.g., Chari and David, 2012;Cuervo-Cazurra and Dau, 2009; Park et al., 2006).These firm-level studies have yielded mixed resultsregarding the effects of pro-market reforms. Somefound that a greater scope of reforms enhancesperformance as it encourages profit-maximizationstrategies (Cuervo-Cazurra and Dau, 2009; Parket al., 2006). Others found that a greater scope ofreforms hurts the persistence of superior perfor-mance as firms struggle to withstand the ensuingcompetition (Chari and David, 2012).

In light of these divergent findings, Kim et al.(2010) argued that the inconclusive evidenceregarding the scope of pro-market reforms couldbe due to the fact that these studies treated insti-tutional change as a static, discrete event. Instead,institutional change in transitioning economiesshould be viewed as a dynamic process. Similarly,Mosakowski and Early (2000) called for researchto move from a static view of the environment tothe dynamic reality in which firms compete. Thus,we extend the institution-based view by applying adynamic perspective that focuses on the speed ofpro-market reforms.

Speed of pro-market reforms

The speed of reforms is a country’s rate of mar-ket liberalization achieved over time. Speed ofreforms captures not only the change in the scopeof reforms between periods (distance travelled),but also how quickly the economy achieves thenew scope of reforms (time travelled) (Heybey andMurrell, 1999). Explicitly accounting for the timeit takes to achieve structural adjustment rendersspeed of reforms an inherently dynamic processbecause time over which “actions occur providesthe link between static and dynamic explanations,and between events and processes” (Besley, Dewa-tripont, and Guriev, 2010; Coricelli, 1998; Jones andCoviello, 2005: 287). However, existing research

has primarily focused on debating what the opti-mum reform speed should be for a country. Somescholars have argued that gradual reforms are bestbecause they allow for maximum adjustment andminimal stress (e.g., Godoy and Stiglitz, 2007;Murrell, 1992). Others have countered that fasterreforms are preferable since they quickly eliminatethe old and inefficient regime (e.g., Havrylyshyn,2007; Lipton et al., 1990).

While this debate has been carried out at thecountry-level, little remains known about howthe speed of reforms affects firm performance.Indeed, the reference to a transitioning econ-omy invokes a sense of movement over time.Accordingly, Xu and Meyer (2013) called forresearch to account for the overall rate of marketliberalization when studying firms from transi-tioning economies. Hence, speed of reforms is thefoundation of our dynamic institution-based viewas it allows us to conceptualize how the markettransition affects the performance of differentfirms—family and non-family—from a dynamic,temporal lens.

Speed of pro-market reforms and firmperformance

In a transitioning economy, the institutional frame-work within which firms are embedded is in flux(Hoskisson et al., 2000; Ireland et al., 2008; Penget al., 2008). Firms in transitioning economies“face a ‘high velocity’ environment of rapid polit-ical, economic and institutional changes that areaccompanied by relatively underdeveloped factorand product markets” (Wright et al., 2005). Asthe economy transitions, “institutional frictions”occur, whereby new pro-market reforms oftenco-exist with the older institutions of the previous,state-controlled regime (Kim et al., 2010; Peng,2003). Rapid reforms raise the uncertainty of theenvironment and challenge firms to seek to adaptto the swiftly changing rules of the game (Xu andMeyer, 2013).

While reform policies are set at the country level,their implementation takes place at the regionallevel (Chan et al., 2010; Meyer and Nguyen, 2005)with various rates of implementation (Kim et al.,2010; Xu and Meyer, 2013). Because institutionalchange is unevenly developed among Chineseprovinces, research suggests that regional differ-ences should be focused on when examining firmperformance (Chan et al., 2010). Accordingly, we



examine how differences in speed of pro-marketreforms across China’s provinces affect firm perfor-mance. We first argue that since rapid reforms raiseuncertainty (Xu and Meyer, 2013), domestic firms(i.e., firms from the transitioning economy) oftenstruggle to keep pace with the reforms. Conversely,domestic firms may be better able to adjust undergradual reforms.

Specifically, rapid pro-market reforms raise theturbulence in the business environment. Rapidreforms imply a swift withdrawal of the statefrom the private sector (Indart, 2004; Zhang andTan, 2007). As the state eliminates its role insetting production and sales goals, firms mustquickly learn to implement production targets,set profit-maximizing prices, and search for newcustomers (Hurt, Hurt-Warski, and Roux-Dufort,2000). Firms often struggle to predict evolvingdemand and to allocate resources to meet thatdemand (Illner, 1998; Xu and Meyer, 2013). Whileresearch suggests that rapid pro-market reformsare beneficial for foreign firms entering the market,for domestic firms transaction costs rise as theystruggle to adapt to rapid institutional changes thatrequire a more competitive stance (McMillan andWoodruff, 2002).

Rapid pro-market reforms open up the marketto foreign competition, making the market fiercelycompetitive (Havrylyshyn, 2007). Firms in rapidpro-market reform environments must learn to sat-isfy increasing customer expectations to competewith increasingly sophisticated foreign products(Chari and David, 2012). If the state quickly with-draws its protection, domestic firms are left tosuddenly deal with market forces related to sup-ply and demand, rapid market liberalization andover-capacity. In turn, the uncertainty and volatil-ity associated with rapid pro-market reforms makesit difficult for firms to predict with accuracy keyparameters of their strategic decision-making (Parket al., 2006; Xu and Meyer, 2013).

Rapid changes in pro-market reforms producea turbulent environment where competitor behav-ior and consumer expectations quickly evolve (Xuand Meyer, 2013). Customers begin to increas-ingly compare product features, demand greatersupply, and expect new and better products to com-pensate for the product restrictions they enduredunder central planning (Illner, 1998). Fast capitalreforms and technology innovations shorten prod-uct life cycles, thereby making products obsolete

and raising firms’ costs (Lieberman and Mont-gomery, 1988). Firms are forced to quickly dein-stitutionalize previous taken-for-granted norms andpractices and to improve the efficiency of theirresource allocations to survive the turbulence ofinstitutional pressures (Kim et al., 2010; Newman,2000). As a result, firms must seek to quicklyadapt to the rapid reforms through trial and error,which strains resources (Hoskisson et al., 2000; Ire-land et al., 2008). Such fast pro-market reformsmay, thus, induce periods of misalignment betweenfirms’ resources and the demands of the environ-ment, which is likely to hurt their performance.

Conversely, gradual reforms allow for a slowerrise in the role of markets (Indart, 2004; Svej-nar, 1991; Zhang and Tan, 2007). Where gradualreforms are implemented, emphasis is placed ondetermining what parts of the “old system” of gov-ernment control needs to be adjusted first so thatchange happens “slow enough to avoid the col-lapse of productive organizations” (Murrell, 1992:92). In China, gradual reforms are consistent withthe adoption of a “dual track,” whereby the privateand state-owned economy are allowed to co-existto protect against the erosion of firm rents from toorapid market liberalization (Lau, Qian, and Roland,2000). Specifically, in China “the introduction of themarket track provides the opportunity for economicagents who participate in it to be better off whereasthe maintenance of the plan track provides implicittransfers to compensate potential losers from themarket liberalization protecting the status quo underthe preexisting plan” (Lau et al., 2000: 122). Thus,gradual reforms reduce market uncertainty and pro-vide a stable and predictable platform that givesfirms time to adjust to the evolving market liberal-ization (McMillan and Woodruff, 2002).

Gradual pro-market reforms allow firms to adjustwith minimum stress (Godoy and Stiglitz, 2007;Murrell, 1992). With gradual reforms, firms donot need to immediately find new customers andsuppliers, but rather, they are given time to studythe effects of pro-market reforms as they slowlywean away from government support and protection(Hurt et al., 2000). While rapid pro-market reformsallow innovations to quickly disrupt the market-place, gradual reforms let firms slowly allocate theircapital to modernize their resource base (Hurt et al.,2000). Slower pro-market reforms allow for theco-existence of newer and older products at dif-ferent price points, which offers firms a broader



range of market opportunities (Lawless and Ander-son, 1996). Accordingly, a gradual reform speed isaptly synthesized by the Chinese proverb that cau-tions against the risk of drowning in rapid streamsand advises the “crossing of the river by feeling onestone at a time” (Henning and Lu, 2000: 55). Thesearguments lead to Hypothesis 1:

Hypothesis 1: In transitioning economies, afaster speed of pro-market reforms reduces firmperformance.

The moderating effect of family influence

Hypothesis 1 assumes that all firms in a rapidly tran-sitioning economy will suffer performance prob-lems. We next relax this assumption to analyze howthe speed of pro-market reforms—performancerelationship varies for family vs. non-family firms.Recent research that has explored what types offirms have an advantage in transitioning economiesoften focuses on family firms (Aguilera andCrespi-Cladera, 2012; Miller et al., 2009; Peng andJiang, 2010). Specifically, family influence can bekey in determining how well a firm performs underdifferent speeds of pro-market reforms becausefamily ownership and management allow thefamily to lead the strategic actions and vision ofthe firm (Chrisman and Patel, 2012; Gomez-Mejia,Makri, and Larraza-Kintana, 2010). Under strongfamily influence, the firm accrues greater libertyto act unilaterally and idiosyncratically along thefamily’s preferences (Carney, 2005).

However, whether family influence providesan advantage in transitioning economies hasremained unclear. While some portray family firmsas virtuously filling institutional voids for thebenefit of stakeholders (Gedajlovic and Carney,2010; Luo and Chung, 2012; Miller et al., 2009),others characterize them as villains that expro-priate wealth from minority shareholders and asill-equipped to deal with dynamic environments(Bertrand et al., 2002; Claessens et al., 2000; Pengand Jiang, 2010). Thus, family influence maymodify the relationship between reform speedand firm performance in transitioning economieslike China. We next outline how China provides aunique context to examine family vs. non-familyfirms since the majority of research on family firmshas been conducted in Western countries. We thenanalyze when family firms have a performance

advantage vs. non-family firms under differentreform speeds in China’s provinces.

Chinese family firms

Because of its collectivistic culture, as opposed tothe individualism of Western societies (Qian, Cao,and Takeuchi, 2013), family firms are prevalent inChina (Ding et al., 2008). Chinese firms greatlyrely on relationships and network ties (guanxi)to conduct business (Peng, 2004) and the promi-nence of the family often provides an instrumen-tal advantage in the development of trust andsocial capital (Weidenbaum, 1996). Confucian val-ues stress family orientation and social harmony,which favors longstanding relationships based onrelational exchanges rather than the formal andimpersonal contracts that are prevalent in Westerncultures (Weidenbaum, 1996). Owing to these val-ues, the Chinese tend to place emphasis on the fam-ily whereby “heirs feel a profound sense of respon-sibility and respect for the family and its businesstradition” (Chen, 2001: 28). Thus, Chinese familiesare inherently committed to preserving the firm inthe family.

The moderating effect of family influence on thespeed of reforms–performance relationship

The institution-based view suggests that the rela-tionship between family influence and firm per-formance may vary under different institutionalenvironments. Environments with rapid vs. gradualpro-market reforms require different resources andefficiencies for firms to achieve strong performance(Kim et al., 2010; McMillan and Woodruff, 2002).

In Chinese provinces with rapid pro-marketreforms, firms need to emphasize efficiency,flexibility, and quick adaptation (McMillan andWoodruff, 2002). Firms must be able to quicklydevelop and then produce new products andservices that will be able to meet the demands ofunfilled market niches. As a result, rapid pro-marketreforms require firms to quickly adapt to the newrules of the game, which includes fending offincreasing competition and operating efficiently(McMillan and Woodruff, 2002).

In contrast, under gradual pro-market reformsfirms are able to incrementally adapt while bene-fitting from some state protection (McMillan andWoodruff, 2002). Although market niches remain



unfilled and demand unsatisfied, many firms strug-gle to acquire resources and to gain access to suppli-ers and customers in gradually reforming markets(McMillan and Woodruff, 2002). Because institu-tional voids persist, emphasis is placed on informalrelationships, social capital and trust (Chan et al.,2010; Kim et al., 2010). Therefore, since differ-ent capabilities seem necessary to foster firm per-formance in environments with rapid vs. gradualpro-market reforms, we argue that while non-familyfirms may have an advantage in rapidly reformingenvironments, family firms may have an advantagein gradually reforming environments.

Rapid pro-market reforms can either make exist-ing resources obsolete or present the firm withnew opportunities to exploit their resources. Underrapid reforms, profits quickly erode as firms strug-gle to adapt to new pro-market reforms. As a result,only the most efficient and adaptive firms survive(McMillan and Woodruff, 2002). Non-family firmsare believed to have an advantage in dynamic envi-ronments due to their emphasis on efficiency andprofit maximization as opposed to family inter-ests like the maintenance of family control andtraditions (Gomez-Mejia et al., 2010; Verbeke andKano, 2010). For example, non-family firms havean advantage in adjusting their human resource baseto meet rapid institutional developments, unlikefamily firms that are known for their long manage-ment tenures and heavy reliance on family statusvs. expertise in hiring (Verbeke and Kano, 2010).Under rapid institutional change, firms that arebetter able to access, allocate and readjust theirresource-base should accrue performance advan-tages (Wan and Hoskisson, 2003).

In comparison to family firms which tend toexhibit strong inertia, non-family firms are quickerto instill new paradigms and to refocus theirefforts on the short-term (Gedajlovic, Lubatkin,and Schulze, 2004; Gedajlovic et al., 2012). Whilenon-family firms react to rapidly changing competi-tive and market conditions by stressing adaptabilityand new product development, family firms oftenappear rigid as they emphasize parsimony andincremental product modifications that center ontheir current customers’ needs (De Massis et al.,2013). Family firms often view change as a threat tothe family’s influence (Gomez-Mejia et al., 2010).Thus, non-family firms’ emphasis on efficiencyand willingness to adopt new paradigms relative tofamily firms’ emphasis on tradition and the family’s

maintenance of control may offer non-family firmsan advantage under rapid pro-market reforms.

Additionally, as pro-market reforms are rapidlyimplemented, more emphasis is placed on for-malized routines and contracts vs. relationalexchanges and social capital. In rapid pro-marketreform environments, the cost of searching fornew trading partners lowers and the cost of break-ing old relationships falls. Laws of contract andfinancial regulations quickly replace the informal,relationship-based mechanisms that once enforcedfair dealings (McMillan and Woodruff, 2002).In turn, as the state’s role rapidly retracts, familyfirms quickly lose their ability to rely on socialcapital to gain government bailouts and prefer-ential access to licenses, contracts, and resourcesfrom public officials (Gedajlovic et al., 2012).This is in line with research that suggests that aspro-market reforms become established, the inten-sity and value of political ties and social capitaldeclines (Xia, Boal, and Delios, 2009). Therefore,we posit that non-family firms will outperformfamily firms in more rapidly reforming Chineseprovinces.

Conversely, family firms may be better ableto navigate gradual reforms in comparison tonon-family firms. When pro-market reforms areslow, firms face “institutional voids” (Khannaand Palepu, 1997) that require them to developresources and strategies that will substitute forformal institutional support. In gradually reformingmarkets, firms must rely on “self-help” to substitutefor missing institutions and modest developmentsin reforms (McMillan and Woodruff, 2002).Here, access to resources is not primarily throughformal channels, but rather through informal,private networks, which can offer advantages tofamily firms (Arregle et al., 2007; Gedajlovicet al., 2012; Peng, 2003; Peng and Jiang, 2010).Indeed, relative to non-family firms, family firmsare best able to develop and exploit social capitalbecause their stable human resource base fosterslong-term, reciprocal relationships (Gedajlovic andCarney, 2010). Family firm leaders in transitioningeconomies are able to commit their firm’s resourceswith a “handshake” since exchange partners see theleaders as stable representatives of their firms withthe power to make commitments and the ability tohonor them (Miller et al., 2009).

Based on trust and reciprocity, family firms buildsocial capital with a variety of stakeholders whosupply the business with needed resources that help



it to overcome institutional voids (Adler and Kwon,2002; Miller et al., 2009). Research on regionaldifferences in China shows that the need for trustand reciprocity varies among provinces (Chan et al.,2010). The stable and predictable nature of grad-ual pro-market reforms provides a platform for theestablishment of long-term relationships and trust(Chan et al., 2010; McMillan and Woodruff, 2002),which family firms are particularly apt at providing.Indeed, family firms are well-placed to secure gov-ernment bailouts, preferential treatment when theirperformance is suffering, and perpetuate economicarrangements that will protect the family’s interests(Gedajlovic and Carney, 2010; Gedajlovic et al.,2012). In contrast to family firms, non-family firmslack the social capital and the power associated withwell-connected families to make informal commit-ments or to reciprocate favors with governmentofficials (Miller et al., 2009). Additionally, as theenvironment slowly reforms, the family can pro-vide the firm with internal financing, human capi-tal, and knowledge exchange that help the firm toovercome institutional voids that persist (Luo andChung, 2012).

In sum, we propose that in rapidly reformingprovinces, non-family firms should have a perfor-mance advantage given the heightened need forefficiency, flexibility and quick adaptation. How-ever, in gradually reforming provinces, family firmsshould have a performance advantage because oftheir emphasis on informal relationships, social cap-ital, and trust.

Hypothesis 2: In transitioning economies, non-family firms outperform family firms under rapidpro-market reforms and family firms outper-form non-family firms under gradual pro-marketreforms.

RESEARCH DESIGN

Data sources and sample

We obtained the firms that were listed on Chinesestock exchanges up to 2009 from the China StockMarket and Accounting Research (CSMAR)’sChina Listed Non-State-Owned Enterprises (2014)database. CSMAR is provided by GTA Data.We focused on non-foreign-funded A-share firms(shares denominated in CNY and open only toChinese investors) (Ding et al., 2008). We excluded

financial/real estate firms, missing firm-yearobservations, a few firms that changed provinces,and outlying observations. Due to the panel dataestimation requirements, we also excluded firmswith less than two years of data, and provinces andindustries (based on the 1999 Industry ClassifyingGuideline of Listed Companies issued by theCSRC) with less than 10 observations. Thus, ourfinal sample included 490 publicly listed firms from30 Chinese provinces during 2004–2009, or 2,032firm-year observations. Focusing on the post-2003period accounts for recent reform developments inChina (Li, 2006).

We obtained the firm-level data from the fol-lowing databases: China Listed Non-State-OwnedEnterprises Database, China Listed Firms Corpo-rate Governance Research Database, China StockMarket Financial Database (Financial Ratios),and China Stock Market Financial StatementsDatabase. We obtained provincial data from ChinaRegional Economic Research Database. The dataon the provinces’ religious units were from theSpatial Explorer of Religion, 2013

Statistical analysis

As the yearly observations are nested in firmsnested in provinces (Cuervo-Cazurra and Dau,2009; Singer and Willett, 2003), the multi-levelmixed method of fixed and random effects is rec-ommended (Arregle, Hebert, and Beamish, 2006;Hitt et al., 2007). The Hausman test (Schafferand Stillman, 2010) also suggested that randomeffects are preferred at the five percent significancelevel (p>Chi2= 0.0561). The heteroskedasticitytest rejected the null hypothesis of homoscedastic-ity at 0.1 percent (Levene, 1960) while the auto-correlation test did not reject the null hypothe-sis of no first-order autocorrelation at five per-cent (Wooldridge, 2002). Thus, we used maximumlikelihood and a heteroskedasticity correction withrobust standard errors.

We estimated a multi-level random coefficientsgrowth model (Cuervo-Cazurra and Dau, 2009;Curran, Obeidat, and Losardo, 2010; Singer andWillett, 2003). It accounts for “inter-individual vari-ability in intra-individual patterns of change overtime,” capturing a firm’s growth trend (Curran et al.,2010: 2; Thrash et al., 2010). Adding a time trendhelps account for firm growth over time (Singerand Willett, 2003). The firm-level explanatory vari-ables were centered at their within-firm means,



which controls for unobserved time-invariant char-acteristics of firms (Enders and Tofighi, 2007;Scott and Dearing, 2012; Thrash et al., 2010). Thewithin-firm centered coefficients of the firm-levelvariables reflect deviations of the firm-level vari-ables from their period averages. Since our datasetincludes firms nested in provinces, an alternativegroup-mean centering method is within-provincecentering. Within-province centering removes theprovincial means from the firm-level variables sothat the coefficients of the firm-level variablesreflect deviations of the firm-level variables fromtheir provincial average. Such group-mean center-ing methods of firm-level variables allow for theproper interpretation of firm-level variables andtheir cross-level interactions (as in Hypothesis 2)(Enders and Tofighi, 2007). For proper interpreta-tion of province-level variables (as in Hypothesis 1),the grand-mean centering method which removeseach variable’s sample average was used, as rec-ommended by Enders and Tofighi (2007). Accord-ingly, we tested Hypothesis 1 with the grand-meancentering method and Hypothesis 2 with the twogroup-mean centering methods (within-firm andwithin-province), which yielded consistent results.In all models, we standardized and lagged theexplanatory variables one year with respect to per-formance (Cuervo-Cazurra and Dau, 2009).

Measures

Performance

Since the firms in our sample are publiclylisted, we measured their performance with amarket-based performance measure: Tobin’s Q(market value/total assets) (e.g., Patel and Chris-man, 2014; Villalonga, 2004). It is considereda forward-looking measure since it incorporatesinvestors’ expectations about firm performance(Villalonga, 2004).

Speed of pro-market reforms

We measured the Speed of Pro-Market Reformswithin each Chinese province since 2003 in twosteps. The speed of pro-market reforms capturesthe distance between the starting and current periodscope of reforms and the time the province tookto achieve the new scope of reforms (Heybey andMurrell, 1999). Accordingly, we first developed anindex of the province’s scope of reforms for all

years of our sample period. Theoretically, our indexbuilds on research that notes that the central focusof structural reforms is to curtail the role of thestate and to increase the role of the markets (Indart,2004; Park et al., 2006; Svejnar, 1991; Zhang andTan, 2007). Governments accomplish this by imple-menting key structural policies: i.e., minimizingstate intervention in resource allocation, lesseningthe state monopoly through enterprise restructuringand the development of a private sector, reducingtrade barriers to liberalize the commodity market,and improving efficiency of the factor markets(Indart, 2004; Park et al., 2006; Svejnar, 1991;Zhang and Tan, 2007). Empirically, our index buildson Wang, Fan, and Zhu’s (2007) index of provincialreforms in China (Li et al., 2011a, 2011b). Thus, thescope of reforms within each Chinese province isthe average value of the 16 sub-components, whichare provided in Table S1. It ranges from 0 (plannedeconomy) to 1 (market economy). Our index is92.68 percent correlated with the Wang et al. (2007)original index, offering high external validity.

Second, we followed prior research and capturedthe Speed of Pro-Market Reforms for each provincewith the distance traveled between the current year’sscope of reforms and the 2003 scope of reforms(base year) divided by the time elapsed since 2003(Heybey and Murrell, 1999). Thus, while the scopeof reforms is the policy level for the year (a staticconcept), the speed of reforms is the rate of pol-icy change achieved over time (a dynamic concept)(Heybey and Murrell, 1999). We recognize thatpro-market reforms in China began in 1978. Thus,we accounted for the possibility that some provinceshave already reached a high scope of reformsin 2003, and hence their subsequent speed ofpro-market reforms may be slower not because theyare developing gradually but because the amount ofreforms “left to go” to a full market economy (i.e.,scope of reforms= 1) is small. Accordingly, we cap-tured what fraction a province’s actual reform speedis relative to its fastest reform speed (Havrylyshyn,2007): Actual Speed of Reformsj,t/Fastest Speed ofReformsj for province j and year t. Actual Speedof Reformsj,t is (Scope of Reformsj,t − Scope ofReformsj,2003)/(t− 2003) with t= 2003,… ,2009 ineach respective year. The Actual Speed of Reformsj,tfor province j in year t is, thus, the differencebetween the current year (i.e., actual) scope ofreforms and the 2003 scope of reforms dividedby years elapsed. Since the denominator is 0



at t= 2003, speed of reforms is calculated for2004–2009.

Fastest Reform Speedj is (Maximum Scope ofReforms− Scope of Reformsj,2003)/(t− 2003)=(1− Scope of Reformsj,2003)/1 for 2004–2009.This refers to the fastest speed with which aprovince could achieve a full market economy(i.e., Maximum Scope of Reforms= 1) in one year.Since in the starting year, the province has not“travelled” to a new scope level, (t− 2003)= 0, theprovince’s 2003 scope of reforms is the maximumreform the province can achieve in 2003. Morepositive (negative) values of the Actual Speed ofReformsj,t/Fastest Speed of Reformsj ratio mean theprovince is implementing faster (slower) reforms.

Family influence

As in prior research (Chrisman and Patel, 2012;Gomez-Mejia et al., 2010; Villalonga and Amit,2006), we measured family influence based onfamily involvement in ownership and managementsince together they make the “pursuit of the [fam-ily] vision possible” (Chua, Chrisman, and Sharma,1999: 25). Family ownership allows the familyto influence the vision of the firm and to sustainthat vision across generations (Chua et al., 1999:25). Family ownership also increases the likelihoodthat the firm will transfer to the next generation(Chua et al., 1999). Family management ensuresthat family managers’ utility function includes fam-ily interests, such as the involvement of the nextgeneration (Kappes and Schmid, 2013: 551). Fol-lowing this line of research, we used a continu-ous measure of family influence (Chrisman et al.,2012). We distinguished family firms by settingFamily Influence equal to the degree of family own-ership for firms where: (1) the family owns atleast five percent of firm’s shares (Chrisman andPatel, 2012; Patel and Chrisman, 2014; Sirmonet al., 2008), and (2) the ultimate controlling share-holder is a family or an individual who is directlyinvolved in the firm’s executive leadership (CEO,General Manager, Board Chairman, or Vice BoardChairman). The five percent ownership threshold isstandard in the literature analyzing public familyfirms (Chrisman and Patel, 2012; Patel and Chris-man, 2014; Werner, Tosi, and Gomez-Mejia, 2005).Additionally, five percent is the minimum thresh-old of shareholding ownership disclosure in Chinabeyond which the China Securities Law considers

the company as consisting of a blockholder (Schou-eten and Siems, 2010: 460; Vermeulen, 2012:22–23). All firms that do not meet both of these con-ditions are considered non-family firms and haveFamily Influence= 0 (Chrisman and Patel, 2012;Patel and Chrisman, 2014). Higher values indicateincreasing family influence. Of our 2,032 firm-yearobservations, 894 relate to family firms.

Control variables

We controlled for Advertising Intensity (sellingexpenses/total sales), Capital Intensity (networkingcapital/sales) (Berger and Ofek, 1995), Firm Size (lnof total sales in CNY) (Villalonga and Amit, 2006),Firm Age (ln of years since incorporation+ 1)(Lowry, Officer, and Schwert, 2010), State Owner-ship (shares owned by the state/total shares) (Peng,2004), Independent Directors (independent direc-tors/total directors) (Schulze et al., 2001), CEODuality (1 when the board chairman is the same per-son as the general manager, 0 otherwise), Free CashFlow (free cash flow/number of shares) (Jensen,1986), Ultimate Owner Direct Control (1 if the ulti-mate owner owns the firm directly; 0 if the ulti-mate owner owns the firm indirectly) (La Portaet al., 1999), and Ultimate Owner Excess Control(ultimate owner’s voting rights–ownership rights)(Villalonga and Amit, 2006).

Additionally, we controlled for the provincialMarket Competition in each year since firm entryinto a market sector increases competition (Hou andRobinson, 2006; Irvine and Pontiff, 2009). MarketCompetition was assessed by new firm entry into theprivate sector–new firm entry into the state sector,each as a percentage of total firms operating in theprovincial market each year. During 2004–2009,94.44 percent of the cases involved no new entriesto the state sector, suggesting that the state-privatesector dual track approach in China has yieldedprecedence to the private sector (Anderson et al.,2003). We also controlled for the provincial MarketStructure with the concentration of the number offirm shares in the provincial private and state sec-tors (Farhauer and Kroll, 2012; Krugman, 1991):∑|||Sk,j,t − Sk,n−j,t

|||, where Sk,j,t is the share of state-and non-state-owned industrial firms in market sec-tor k (private or state sector) in province j and year trelative to the average share of these firms in sectork across the rest of the provinces n excluding sectork’s share in the same year in the focal province j.



We controlled for the Scope of Pro-MarketReforms and its interaction with the Speed of Pro-Market Reforms, which represents a more conser-vative model (Walter, Kellermanns, and Lechner,2012). We also accounted for the ultimate owner’sability to exercise control under different degrees(Scope of Pro-Market Reforms×Ultimate Owner’sExcess Control) and speeds of liberalization (Speedof Pro-Market Reforms×Ultimate Owner’s ExcessControl). Similarly, we controlled for the family’sability to manage under different degrees of liberal-ization with Scope of Pro-Market Reforms×FamilyInfluence.

We further controlled for the provinces’ mon-etary and fiscal stabilization policies (Indart,2004). Monetary Policy is loan balance of finan-cial institutions/GDP in CNY 10,000 (Lown andMorgan, 2006). As data on each province’s loanbalance were not reported for 2003, we used the2004 value. For Tibet, the loan balance data werereported for 2007–2009, so we used the 2007 val-ues for the preceding years. Fiscal Policy is fiscalexpenditures–fiscal revenues in CNY 10 bill (Dar-rat, 1990). We captured the provinces’ legal frame-work with Law and Order: ln (expenses on law andorder areas such as public security, court of justice,and armed police forces in CNY 10,000/GDP inCNY 10,000) (Lopez-de-Silanes et al., 1998). Asdata on a province’s law and order expenses wereavailable for 2003–2006, the remaining years’ dataare the average of these provincial expenses in theprevious two years. We further controlled for Eco-

nomic Specialization:∑|||Sk,j,t − Sk,n−j,t

|||, whereSk,j,t is the GDP share of industry k in province j andyear t relative to the average GDP share of industryk across the rest of the provinces n excluding indus-try k’s share in the same year in the focal provincej (Farhauer and Kroll, 2012; Krugman, 1991).We captured the provinces’ informal institutions(North, 1990; Peng et al., 2009) with ReligiousFractionalization: 1−

∑Sj,t

2 (Alesina et al., 2003),where Sj,t is the share of religious units (Buddhism,Christianity, Daoism, Islam, religious administra-tions, and other). As the religious unit data wereavailable for 2003–2004, the remaining years’ dataare the average of the religious units in the provincein the prior two years. For Beijing, only 2002 valueswere reported, so we used those for the remainingyears. For Tibet and Hainan, only 2004–2009values were reported, so we used the 2004 valuefor 2003. We lastly controlled for GDP Growth,

Industry (1 for industrial firms; 0 otherwise), andTime Trend (Scott and Dearing, 2012).

RESULTS

We first explored the heterogeneity in the provinces’average scope and speed of reforms for 2004–2009.The average scope of reforms was highest for thecoastal provinces of Zhejiang (0.706), Guang-dong (0.685), and Jiangsu (0.656), and lowestfor the inland provinces of Qinghai (0.314),Gansu (0.308), and Tibet (0.248), in line withprior research (Caulfield, 2006; Park et al., 2006).The average speed of reforms was the fastest forJiangsu (0.0296), Jilin (0.0294), and Guangxi(0.027), and the slowest for Shaanxi (−0.006),Guangdong (−0.007), and Sichuan (−0.008), alsoin line with prior research. Jiangsu benefitted from“early implementation of reform policies” andwas one of the first to liberalize (Wei and Fan,2000). Jilin enjoyed “sustained, rapid and healthydevelopment of the private economy” (Jilin PressRelease, 2013; Zhao, 2012). Guangxi rapidlyimproved its telecommunications, high technology,and education (Yefang, 2008). In contrast, Shaanximaintained a heavy state sector, with little change(Watson, 1998). Guangdong experienced a recentdecline in urban-rural development (Liu, Lu, andChen, 2013) due to an overemphasis on the statesector (Invest Guangzhou, 2011; Kueh, 2012; Lang-fitt, 2008). Sichuan has failed to “find a path towardsustained reform and growth” (Lin, 1998: 416).

The descriptive statistics follow in Table 1 andthe results appear in Table 2. The average varianceinflation factor (VIF) was 1.71 and the conditionindex was 5.14, significantly below the threshold of30 (Cohen et al., 2003).

We built the models in Table 2 sequentially: Mod-els 2.1–2.3 present the grand-mean centered results,with the full specification in Model 2.3, whichwe used to test Hypothesis 1 (Enders and Tofighi,2007). Models 2.4 and 2.5 present the within-firmand within-province centered results, respectively,which we used to test the cross-level interaction inHypothesis 2 (Enders and Tofighi, 2007). Model2.3 shows that a faster speed of reforms reducesfirm performance, supporting Hypothesis 1. Fur-ther, Models 2.4 and 2.5 show that increasingfamily influence intensifies the negative effect ofspeed of reforms on firm performance, support-ing Hypothesis 2. Thus, while family firms have a



Table 1. Descriptive statistics and correlations

Variable Mean S.D. 1 2 3 4 5 6 7 8 9

1 Performance 2.16 1.44 1.002 Speed of pro-market reforms 0.01 0.02 −0.15 1.003 Family firm 0.11 0.16 0.23 −0.11 1.004 Ultimate owner’s direct control 0.15 0.35 0.13 −0.02 0.23 1.005 Scope of pro-market reforms 0.54 0.13 0.06 0.12 0.23 0.14 1.006 Monetary policy 1.00 0.43 0.13 −0.05 0.11 0.07 0.34 1.007 Fiscal policy 4.65 3.23 0.09 −0.18 0.03 −0.04 −0.28 −0.34 1.008 Religious fractionalization 0.62 0.13 −0.03 0.08 0.03 0.03 0.40 −0.24 −0.01 1.009 GDP growth 0.18 0.04 −0.11 0.15 −0.10 −0.03 −0.14 −0.35 −0.12 0.00 1.00

10 Market competition 0.02 0.03 −0.10 0.11 −0.15 −0.08 −0.44 −0.19 −0.09 −0.24 0.1411 Market structure 0.23 0.15 −0.13 0.37 0.00 0.01 0.29 −0.07 −0.35 0.23 0.0112 Firm age 1.79 0.78 −0.15 −0.11 −0.43 −0.34 −0.30 −0.03 0.16 −0.11 −0.0513 Firm size 20.32 1.19 −0.19 −0.01 0.06 −0.05 0.19 0.05 0.05 0.08 −0.0314 Capital intensity −0.98 26.57 −0.03 0.02 0.04 0.02 0.01 0.02 −0.01 0.01 0.0115 Advertising intensity 0.07 0.09 0.12 0.02 0.07 −0.01 −0.12 0.04 0.01 −0.18 0.0116 State ownership 0.09 0.16 −0.17 0.10 −0.28 −0.08 −0.18 −0.06 −0.11 −0.06 0.1217 Independent directors 0.36 0.05 0.10 −0.07 0.13 0.02 0.06 0.02 0.03 0.04 −0.0418 CEO duality 0.20 0.40 0.08 −0.01 0.14 0.12 0.11 0.04 0.01 −0.03 −0.0419 Ultimate owner’s excess control 0.09 0.09 −0.05 −0.01 −0.16 −0.43 −0.08 −0.04 −0.01 −0.04 0.0020 Free cash flow 0.30 1.10 −0.13 0.05 0.01 0.03 0.03 −0.01 −0.04 0.03 0.0521 Law and order −4.86 0.32 −0.16 0.06 −0.14 −0.03 −0.37 0.06 −0.39 −0.27 0.0722 Economic specialization 0.23 0.12 0.06 0.09 0.08 0.05 0.29 0.49 −0.40 −0.36 −0.15

10 1.0011 −0.19 1.0012 0.12 −0.14 1.0013 −0.14 0.03 0.05 1.0014 −0.01 0.02 −0.04 0.21 1.0015 0.10 −0.05 0.02 −0.21 −0.11 1.0016 0.15 −0.01 0.14 −0.05 −0.04 −0.08 1.0017 −0.06 −0.04 −0.02 −0.01 0.01 0.03 −0.07 1.0018 −0.04 −0.04 −0.11 −0.02 0.03 0.02 −0.04 0.08 1.0019 0.06 −0.01 0.07 0.06 −0.06 0.05 −0.13 −0.04 −0.09 1.0020 −0.01 0.03 0.01 0.12 −0.01 −0.04 0.03 −0.01 0.00 0.02 1.0021 0.36 0.30 0.08 −0.21 −0.02 0.13 0.19 −0.11 −0.03 0.01 0.03 1.0022 −0.10 0.36 −0.09 0.05 0.03 0.04 −0.06 −0.01 0.06 −0.03 0.00 0.13

Note: Raw variables presented. Bold indicates significance at 5 percent.

performance advantage in more gradually reform-ing markets, they have a performance disadvan-tage in more rapidly reforming markets vis-à-visnon-family firms.

The firm-level controls and their interactionswith the province-level variables are interpreted perModels 2.4–2.5 (Enders and Tofighi, 2007). Fam-ily Influence marginally improved performance, andFirm Size reduced performance (Park et al., 2006).Capital Intensity improved performance (Miller,2006) as did the Ultimate Owner’s Excess Con-trol (Villalonga and Amit, 2009). However, Ulti-mate Owner Excess Control in combination withfaster Speed of Pro-Market Reforms reduced perfor-mance, as did CEO Duality (Bai et al., 2004).

The province-level controls and the province-province interactions are interpreted per Model2.3 (Enders and Tofighi, 2007). While Scopeof Pro-Market Reforms significantly improvedperformance (Cuervo-Cazurra and Dau, 2009;Park et al., 2006), Market Competition reducedit (Tirole, 1988). Law and Order significantlyraised performance (La Porta et al., 2002). FiscalPolicy significantly enhanced performance throughthe “crowding-in effect of private investment”(Argimon, Gonzalez-Paramo, and Roldan, 1997:1007). GDP Growth significantly reduced per-formance as “expected economic growth is builtinto current prices, thus reducing future realized



Tabl

e2.

Spee

dof

pro-

mar

ketr

efor

ms,

fam

ilyin

fluen

ce,a

ndpe

rfor

man

ceof

Chi

nese

firm

s

Mod

el2.

1M

odel

2.2

Mod

el2.

3M

odel

2.4

Mod

el2.

5

Cen

teri

ng:

Gra

nd-

mea

nW

ithin

-firm

With

in-p

rovi

nce

Var

iabl

e:C

oeff

.t

Coe

ff.

tC

oeff

.t

Coe

ff.

tC

oeff

.t

Spee

dof

pro-

mar

ketr

efor

ms

H1:

−0.

273*

**(2.7

41)

−0.

271*

**(2.7

27)

−0.

282*

**(2.7

94)

−0.

326*

**(3.4

34)

−0.

280*

**(2.8

43)

Spee

dof

pro-

mar

ketr

efor

ms×

fam

ily

influ

ence

H2:

−0.

081*

**(2.7

55)

−0.

021*

(1.7

82)

−0.

067*

*(2.3

38)

Fam

ily

influ

ence

0.17

0***

(3.3

73)

0.16

4***

(3.0

19)

0.03

7*(1.6

55)

0.15

3***

(3.1

13)

Ult

imat

eow

ner’

sdi

rect

cont

rol

−0.

002

(0.0

55)

0.00

2(0.0

45)

−0.

004

(0.1

00)

−0.

032

(1.5

56)

0.00

1(0.0

35)

Adv

erti

sing

inte

nsit

y0.

081

(1.2

73)

0.07

9(1.2

70)

0.07

3(1.2

01)

−0.

031

(1.1

19)

0.07

4(1.2

61)

Cap

ital

inte

nsit

y−

0.05

0(0.6

07)

−0.

051

(0.5

99)

−0.

052

(0.6

19)

0.09

6**

(2.2

90)

−0.

069

(0.7

67)

Fir

msi

ze−

0.41

3***

(7.0

58)

−0.

424*

**(7.2

22)

−0.

430*

**(7.0

66)

−0.

126*

**(3.2

99)

−0.

411*

**(7.0

22)

Fir

mag

e−

0.07

3**

(2.1

65)

−0.

012

(0.2

95)

−0.

007

(0.1

89)

−0.

063

(1.1

44)

−0.

004

(0.1

00)

Stat

eow

ners

hip

−0.

057*

(1.8

91)

−0.

032

(1.0

79)

−0.

038

(1.2

90)

−0.

025

(1.0

70)

−0.

037

(1.3

66)

Fre

eca

shflo

w−

0.00

5(0.1

98)

−0.

009

(0.4

22)

−0.

008

(0.3

66)

−0.

003

(0.1

08)

−0.

009

(0.4

02)

Inde

pend

entd

irec

tors

0.01

4(0.3

75)

0.00

6(0.1

69)

0.00

3(0.0

72)

0.01

1(0.3

54)

0.00

2(0.0

62)

CE

Odu

alit

y−

0.03

1(0.9

99)

−0.

036

(1.1

05)

−0.

038

(1.1

37)

−0.

040*

*(2.1

95)

−0.

038

(1.1

77)

Ult

imat

eow

ner’

sex

cess

cont

rol

−0.

023

(0.5

77)

−0.

004

(0.1

14)

0.00

2(0.0

51)

0.05

0**

(2.0

96)

−0.

001

(0.0

23)

Scop

eof

pro-

mar

ketr

efor

ms

0.75

8***

(3.3

21)

0.75

8***

(3.1

56)

0.78

1***

(3.2

15)

0.67

1***

(3.2

95)

0.77

2***

(3.4

14)

Scop

eof

pro-

mar

ketr

efor

ms×

spee

dof

pro-

mar

ketr

efor

ms

0.09

7(1.2

35)

0.10

1(1.2

75)

0.11

9(1.5

43)

0.09

4(1.2

60)

0.10

0(1.2

84)

Fam

ily

influ

ence

×sc

ope

ofpr

o-m

arke

tref

orm

s0.

051

(1.4

08)

0.01

4(0.3

21)

0.04

8(1.0

37)

0.01

8(0.9

83)

0.05

3(1.3

18)

Ult

imat

eow

ner

exce

ssco

ntro

l×sc

ope

ofpr

o-m

arke

tref

orm

s−

0.02

1(0.4

83)

−0.

008

(0.1

88)

−0.

003

(0.0

65)

0.00

4(0.1

58)

−0.

001

(0.0

35)

Ult

imat

eow

ner

exce

ssco

ntro

l×sp

eed

ofpr

o-m

arke

tref

orm

s0.

005

(0.2

22)

0.00

2(0.0

87)

−0.

013

(0.5

05)

−0.

064*

**(3.0

36)

−0.

012

(0.4

65)

Mar

ketc

ompe

titi

on−

0.19

9***

(3.6

49)

−0.

204*

**(3.7

67)

−0.

201*

**(3.6

70)

−0.

221*

**(3.4

05)

−0.

200*

**(3.5

95)

Mar

kets

truc

ture

−0.

123

(0.7

74)

−0.

124

(0.7

81)

−0.

123

(0.7

76)

−0.

255*

(1.7

08)

−0.

126

(0.8

14)

Law

and

orde

r1.

136*

**(8.9

76)

1.15

6***

(8.9

57)

1.16

5***

(9.0

67)

0.90

1***

(7.2

82)

1.16

1***

(9.4

77)

Mon

etar

ypo

licy

−0.

402*

**(3.8

48)

−0.

431*

**(4.1

58)

−0.

437*

**(4.2

82)

−0.

540*

**(4.3

56)

−0.

418*

**(3.9

89)

Fis

calp

olic

y0.

349*

**(2.6

26)

0.34

0***

(2.6

46)

0.34

2***

(2.6

14)

0.41

6***

(2.6

38)

0.35

0***

(2.6

42)

GD

Pgr

owth

−0.

280*

**(3.5

97)

−0.

279*

**(3.5

35)

−0.

278*

**(3.4

98)

−0.

348*

**(3.9

42)

−0.

279*

**(3.5

15)

Eco

nom

icsp

ecia

liza

tion

0.02

0(0.1

54)

0.02

2(0.1

66)

0.01

7(0.1

30)

0.04

2(0.3

45)

0.02

7(0.2

11)

Rel

igio

usfr

acti

onal

izat

ion

−0.

006

(0.0

59)

−0.

002

(0.0

19)

−0.

006

(0.0

56)

−0.

008

(0.0

83)

−0.

001

(0.0

13)

Con

stan

t2.

020*

**(8.9

55)

2.03

6***

(8.8

14)

2.02

2***

(8.6

41)

2.04

3***

(9.0

87)

Log

-lik

elih

ood

−2,

400.

193

−2,

393.

066

−2,

388.

851

−2,

466.

544

−2,

388.

272

AIC

4,86

0.38

54,

846.

132

4,83

7.70

24,

993.

087

4,83

6.54

4W

ald

Chi

-sq.

4,43

3.76

***

6,69

1.21

***

23,2

41.7

4***

32,8

37.2

7***

7,00

2.92

***

Not

e:Pr

esen

ted

are

stan

dard

ized

coef

ficie

nts.

All

mod

els

cont

rol

for

time

tren

d(n

otpr

esen

ted

for

spac

eco

nsid

erat

ion)

.M

odel

s2.

1–

2.3

and

2.5

also

cont

rol

for

indu

stry

(not

pres

ente

dfo

rsp

ace

cons

ider

atio

n).

The

with

in-fi

rmce

nter

ing

proc

edur

ein

Mod

el2.

4ac

coun

tsfo

rth

etim

e-in

vari

ant

indu

stry

.In

all

mod

els,

year

lyob

serv

atio

nsar

ene

sted

with

infir

ms

nest

edw

ithin

prov

ince

s,so

prov

ince

cont

rol

isun

nece

ssar

y(C

uerv

o-C

azur

raan

dD

au,2

009)

.N=

1,54

2.*p

<0.

10;*

*p<

0.05

;***

p<

0.01

.



returns” (Fisher, 2012; Wan and Yiu, 2009). Sim-ilarly, Monetary Policy also reduced performance(Dadush, Dasgupta, and Uzan, 2000).

Robustness and post-hoc tests

We performed several robustness and post-hoc tests.First, we used a more conservative speed criterioninstead of Fastest Speed of Reforms (Havrylyshyn,2007): Steady Progress Speed of Reforms j,t. It isthe average sustained speed of reforms a provincej could achieve in year t, guaranteeing reachingthe maximum scope of pro-market reforms of 1by 2009 in equal leaps from one year to the next.For 2004–2009, the Steady Progress Speed ofReforms j,t. is the difference between 1 and the2003 actual scope of reforms divided by 6. As perthe Hausman test (Schaffer and Stillman, 2010)at five percent significance (p>Chi2= 0.0561), weused the multi-level random coefficients growthmodel and found support for Hypotheses 1 and 2.

Second, we set the original speed of pro-marketreforms to 0 for the province-year observationsshowing reversals (negative speed). As per theHausman test (Schaffer and Stillman, 2010) atfive percent significance (p>Chi2= 0.0696), weused the multi-level random coefficients growthmodel and found support for Hypotheses 1 and2. We also retested the hypotheses with Speedof Reversals by setting the original speed ofpro-market reforms to 0 for the province-yearobservations showing reforms (positive speed).We multiplied the Speed of Reversals by −1 sothat more positive values capture faster speed ofreform reversals. As per the Hausman test (Schafferand Stillman, 2010) at five percent significance(p>Chi2= 0.0383), we used fixed effects withfirm-clustered robust standard errors. Here, wedid not find support for Hypothesis 1 or 2, whichtherefore suggests that a faster speed of reforms,and not speed of reversals, reduces performance.

Third, we modified the threshold of familyinfluence to 10 percent (Chrisman and Patel,2012; Gomez-Mejia et al., 2010; Patel andChrisman, 2014), 15 percent (Sirmon et al.,2008), 20 percent (Faccio and Lang, 2002), and25 percent (Sirmon et al., 2008). At 10 percent,the Hausman test (Schaffer and Stillman, 2010)preferred random effects at five percent significance(p>Chi2= 0.0582), so we used the multi-levelrandom coefficients growth model. At 15, 20, and

25 percent, the Hausman tests (Schaffer and Still-man, 2010) preferred fixed effects at five percentsignificance (p>Chi2= 0.0448; 0.0338; and0.0267, respectively) so we used fixed effects withfirm-clustered robust standard errors. We foundsupport for Hypotheses 1 and 2 with each of thesefamily ownership thresholds.

Fourth, we measured performance withprice-to-book (market value per share/net assetsper common share), managerial efficiency (totalsales/total assets), and operating revenue per share.As per the Hausman test (Schaffer and Stillman,2010) with price-to-book (p>Chi2= 0.3357),we used the multi-level random coefficients growthmodel. As per the Hausman tests (Schaffer andStillman, 2010) with managerial efficiency andoperating revenue per share (p>Chi2= 0.0000),we used fixed effects with firm-clustered robuststandard errors. We found support for Hypothesis 1with price-to-book ratio and managerial efficiencyand for Hypothesis 2 with price-to-book ratio.

Finally, we conducted a post-hoc test on the fam-ily firm sub-sample to explore if different familyexcess control levels (family’s voting rights–cashflow rights) led to performance differences at var-ious speeds of reforms. No firms had ultimateowner’s voting rights below ownership rights. Asper the Hausman test (p>Chi2= 0.1522, Schafferand Stillman, 2010), we used the multi-level ran-dom coefficients growth model and found a neg-ative (−0.08; p< 0.05) interaction between familyexcess control and speed of reforms. We retestedthese results on the non-family firm sub-sample.As per the Hausman test (p>Chi2= 0.0748), weused the multi-level random coefficients growthmodel and found that the interaction between thenon-family ultimate owner’s excess control andspeed of reforms was not significant, suggesting thatfamily owners affect performance differently thannon-family owners (Miller, Le Breton-Miller, andLester, 2010).

DISCUSSION

With the growing importance of transitioningeconomies to the global economy, the institution-based view of the firm has gained prominence(Aguilera and Crespi-Cladera, 2012; Gedajlovicet al., 2012; Hoskisson et al., 2000; Peng andJiang, 2010). However, the tendency of most of thisresearch to focus on scope of pro-market reforms



is problematic since it treats institutional change asa static, discrete event (Kim et al., 2010). Indeed,our study revealed that scope and speed of reformsaffect firm performance differently. Supportingour dynamic institution-based view, the resultsshowed that while scope of reforms increases firmperformance, the speed of reforms hurts firm per-formance. Thus, while firm performance improvesunder gradual reforms, it deteriorates as the speedof reforms increases. This effect is even more pro-nounced for family firms. Specifically, our resultsshowed that while family firms have an advantagein gradually reforming provinces, non-family firmshave an advantage in rapidly reforming provinces.Thus, we extend the institution-based view ofthe firm by advancing a dynamic perspectiveof institutional change that captures the speedat which a transitioning economy approaches amarket-based system and how the speed of reformsaffects different types of domestic firms—familyvs. non-family firms.

Our study contributes to the strategic manage-ment and international business literatures by apply-ing logic from economics on the optimal speedof pro-market reforms for a country’s level ofdevelopment to the firm. While some advocatefor rapid pro-market reforms at the country level(Havrylyshyn, 2007; Lipton et al., 1990), our studyshowed that when applied to the firm-level, gradualpro-market reforms are most conducive to improv-ing firm performance. Therefore, while a greaterscope of pro-market reforms is beneficial to firmperformance, those reforms should be implementedgradually so that firms have the opportunity toadjust their capabilities and learn how to competein the evolving economy.

Given our divergent findings for scope andspeed of pro-market reforms, our study mayexplain why previous research on the link betweenscope of pro-market reforms and firm perfor-mance has been inconsistent (Chari and David,2012; Cuervo-Cazurra and Dau, 2009). Our studyrevealed that this previous inconsistency may havearisen because prior research did not take intoaccount the speed at which pro-market reformswere being implemented. As such, institutionalchange should not be viewed as a discrete, staticevent. Rather, the institution-based view of the firmshould consider the speed at which pro-marketreforms are implemented, thus capturing thedynamic and evolving environment of a transi-tioning economy. Future studies investigating the

impact of pro-market reforms should thereforeconsider a dynamic institution-based view giventhe robust findings of our study.

Besides contributing to theory on the institution-based view of the firm and transitioning economies,our research makes an empirical contribution tothe literature by developing an index of speed ofpro-market reforms. This index accounts for thepossibility that some Chinese provinces may havealready reached a high scope of reforms at the startof the sampled period. As such, our measure cap-tures the change in the scope of pro-market reformssince the start of the period (distance traveled) aswell as how quickly the economy achieved thenew scope of reforms (time traveled). While westudied differences in speeds of pro-market reformsamong Chinese provinces, we hope future researchexamines regional differences in other transitioningcountries and also applies our framework to inves-tigate cross-country differences.

Understanding China’s transition is important tothe strategic management and international businessliteratures since China has become a dominant eco-nomic power and one of the world’s largest mar-kets (Chan et al., 2010; Park et al., 2006). How-ever, China also demonstrates significant regionalvariance (Chan et al., 2010). Accordingly, researchhas called for studies to consider regional differ-ences when investigating transitioning economies(Chan et al., 2010). Although other research on Chi-nese regional differences has suggested that greaterpro-market reforms benefit foreign entrants (Chanet al., 2010), our study showed that when thesereforms are too rapid, domestic Chinese firms suf-fer. Future research could build on these findingsby applying our dynamic institution-based view toinvestigate how the speed of pro-market reformsaffects domestic and foreign firms differently intransitioning economies. Further, while our studyexamined publicly-held firms, additional researchshould expand our dynamic institution-based viewto privately-held firms and entrepreneurial busi-nesses. Research has suggested that not all firmsrespond to or benefit from institutional changeequally (Cuervo-Cazurra and Dau, 2009; Kim et al.,2010; Peng, 2004).

Our study contributes to this line of inquiryby examining the performance of family andnon-family firms under different speeds of pro-market reforms. We aimed to reconcile the diver-gent views on whether family firms have anadvantage over non-family firms (e.g., Gedajlovic



et al., 2012; Luo and Chung, 2012; Miller et al.,2009) by studying, instead, when family firmsbenefit vis-à-vis non-family firms from differentspeeds of reforms. While greater family influencehas an advantage in gradually reforming markets,it becomes a disadvantage in rapidly reformingmarkets. Our results support Verbeke and Kano’s(2010) conceptual argument that family influenceis preferable in stable environments since such acontext calls for greater informal contracting abil-ities. However, in environments undergoing rapidreforms, greater family influence harms firm perfor-mance. Thus, we extend the institution-based viewof the firm by showing that the speed of institu-tional change matters, particularly for family firms.We hope these findings motivate more research onfamily firms in transitioning economies.

Limitations and implications

Before discussing the implications of our study,we note a few caveats. First, our study focusedon only one transition economy—China. BecauseChina has institutionally diverse provinces (Chanet al., 2010), it provided a useful research labo-ratory to test our framework. Future research canextend our results to other transitioning economies.Second, because each firm’s industry in oursample included only the firm’s publicly-listedcounterparts, the firm-level competition wasunder-estimated since a firm’s industry includesboth public and private firms. To mitigate thislimitation, we used province-level competitionvariables, which included the public and privatefirms per province-year. Third, while we definedfamily firms in line with prior research (Chrismanand Patel, 2012; Patel and Chrisman, 2014), futureresearch should explore the effects of a family’sintension for transgenerational control (Chrismanet al., 2010; Zellweger et al., 2012). Given our useof secondary data, we did not have such informa-tion. However, in the Chinese context, Confucianvalues should encourage such intentions (Chen,2001; Yan and Sorenson, 2006). Finally, we did nothave data on the speed of reforms prior to 2003.Future research can expand our study by analyzinghow China has evolved since the original start ofreforms in 1978, if there have been different stagesof institutional development, and how these stageshave affected firm performance.

Despite these limitations, our study has importantimplications for practice. While managers dealing

with gradual pro-market reforms can expect theirfirm performance to improve due to the slow lib-eralization of the market, those dealing with rapidreforms should expect a misalignment between theirfirm’s capabilities and the requirements of the insti-tutional environment that they must contend with.In rapidly reforming economies, advantages shouldgo to those firms that are quickly able to adapt tothe “new rules of the game.” Since family firmsappear to be at a disadvantage relative to non-familyfirms under rapid reforms, family firms need to beespecially strategic in their responses to pro-marketreforms. Future research should identify strategiesthat can be utilized to best adapt to gradual and rapidpro-market reforms.

Regarding policy implications, economistshave debated if a greater scope of pro-marketreforms benefits a country’s development (Dollarand Kraay, 2004; Lipton et al., 1990; Sachs andWarner, 1995; Williamson, 1990) or not (Krueger,2004; Rodriguez and Rodrik, 2001; Stiglitz,2002). Critics of pro-market reforms contend thatsome developing countries (e.g., Argentina) haveexperienced disappointing results from reformsin the form of increased poverty and decreasedmacro-economic stability, partially because of thedestruction of local citizens’ jobs following the del-uge of imports (e.g., Stiglitz, 2002). Other scholarshave countered that the scope of reforms did not aimhigh enough from the outset, making them easier toreverse (Krueger, 2004). Thus, economists have notreached a consensus on what the optimal balancebetween free markets and state planning should befor the sustained development of countries.

Also, the optimum speed of pro-market reformsfor a country’s development has been contested.Some economists argue that a slower speed is bestas it gives a country’s population time to adjust tothe new market reality (Godoy and Stiglitz, 2007;Murrell, 1992). Others counter that a faster speedis preferable since it quickly dismantles the inef-ficient state-controlled regime and likely preventsreform reversals (Havrylyshyn, 2007; Lipton et al.,1990). Our findings provide a novel perspective onthese policy debates. Specifically, our results sup-port the advocates of greater market liberalization,as we find a positive firm performance effect fromgreater scope of reforms. However, our results alsosupport the advocates of slower reforms, as wefind a negative firm performance effect from fasterreforms. Thus, we suggest that while policy mak-ers in transitioning economies like China should



advance pro-market reforms, their implementationneeds to be at a gradual speed to avoid hurting firmperformance.

In conclusion, our dynamic institution-basedview of the firm demonstrates that the speed ofpro-market reforms matters to firm performance intransitioning economies like China. While scopeof pro-market reforms has a positive effect on firmperformance, speed of pro-market reforms has anegative effect on firm performance. Additionally,as the speed of pro-market reforms increases,the performance of family firms in comparisonto non-family firms declines. Thus, our studyextends the institution-based view of the firmacross time (speed of reforms) and firms (family vs.non-family firms). In line with the Chinese proverbthat warns against hasty actions and advises “thecrossing of the river by feeling one stone at atime” (Henning and Lu, 2000), our study on firmperformance advocates for the gradual implemen-tation of pro-market reforms. It also suggests thatin gradually reforming markets, family firms mayhave an advantage in crossing the river.

ACKNOWLEDGEMENTS

We would like to thank the editor Prof. WillMitchell, as well as the two anonymous review-ers who greatly helped to improve the qualityof our paper. Additionally, we extend our grati-tude to Alvaro Cuervo-Cazurra, Aya Chacar, MuraliChari, James Chrisman, Craig Enders, Isabelle LeBreton-Miller, Rose Luo, Klaus Meyer, and AntheaZhang for their useful feedback on earlier versionsof this manuscript.

REFERENCES

Adler PS, Kwon SW. 2002. Social capital: prospects fora new concept. Academy of Management Review 27:17–40.

Aguilera R, Crespi-Cladera R. 2012. Firm family firms:current debates of corporate governance in family firms.Journal of Family Business Strategy 3(2): 66–69.

Aguilera R, Filatotchev I, Gospel H, Jackson G. 2008. Anorganizational approach to comparative corporate gov-ernance: costs, contingencies, and complementarities.Organization Science 19(3): 475–492.

Alesina A, Devleeschauwer A, Easterly W, Kurlat S,Wacziarg R. 2003. Fractionalization. Journal of Eco-nomic Growth 8: 155–194.

Anderson RC, Mansi SA, Reeb DM. 2003. Foundingfamily ownership and the agency cost of debt. Journalof Financial Economics 68(2): 263–285.

Argimon I, Gonzalez-Paramo J, Roldan J. 1997. Evidenceof public spending crowding-out from a panel of OECDcountries. Applied Economics 29: 1001–1010.

Arregle J, Hebert L, Beamish P. 2006. Mode of interna-tional entry: advantages of multilevel methods. Man-agement International Review 5: 557–618.

Arregle JL, Hitt MA, Sirmon DG, Very P. 2007. Thedevelopment of organizational social capital: attributesof family firms. Journal of Management Studies 44(1):73–95.

Arregle J, Miller TL, Hitt MA, Beamish PW. 2013.Do regions matter? An integrated institutional andsemiglobalization perspective on the internationaliza-tion of MNEs. Strategic Management Journal 34(8):910–934.

Bai C, Liu Q, Lu J, Song F, Zhang J. 2004. Corporategovernance and market valuation in China. Journal ofComparative Economics 32: 599–616.

Berger PG, Ofek E. 1995. Diversification’s effect on firmvalue. Journal of Financial Economics 37: 39–65.

Bertrand M, Mehta P, Mullainathan S. 2002. Ferretingout tunneling: an application to Indian business groups.Quarterly Journal of Economics 117: 121–148.

Besley T, Dewatripont M, Guriev S. 2010. Transitionand transition impact: a review of the concept andimplications for the EBRD. Report for the EBRD’sOffice of the Chief Economist.

Carney M. 2005. Corporate governance and competitiveadvantage in family-controlled firms. EntrepreneurshipTheory & Practice 29(3): 249–265.

Caulfield J. 2006. Local government reform in China:a rational actor perspective. International Review ofAdministrative Sciences 72(2): 253–267.

Chan C, Makino S, Isobe T. 2010. Does subnational regionmatter? Foreign affiliate performance in the UnitedStates and China. Strategic Management Journal 31:1226–1243.

Chari M, David P. 2012. Sustaining superior performancein an emerging economy: an empirical test in theIndian context. Strategic Management Journal 33(2):217–229.

Chen M-J. 2001. Inside Chinese Business: A Guide forManagers Worldwide. Harvard Business School Press:Boston, MA.

Chrisman J, Chua J, Pearson A, Barnett T. 2012. Fam-ily involvement, family influence, and family-centerednon-economic goals in small firms. EntrepreneurshipTheory and Practice 36(2): 267–293.

Chrisman JJ, Kellermanns FW, Chan KC, Liano K. 2010.Intellectual foundations of current research in familybusiness: an identification and review of 25 influentialarticles. Family Business Review 23(1): 9–26.

Chrisman J, Patel P. 2012. Variations in R&D investmentsof family and non-family firms: behavioral agencyand myopic loss aversion perspectives. Academy ofManagement Journal 55(4): 976–997.

Chua J, Chrisman J, Sharma P. 1999. Defining the fam-ily business by behavior. Entrepreneurship Theory &Practice 23(4): 19–39.



Claessens S, Djankov S, Lang L. 2000. The separationof ownership and control in East Asian Corporations.Journal of Financial Economics 58: 81–112.

Cohen J, Cohen P, West S, Aiken L. 2003. Applied Mul-tiple Regression/Correlation Analysis for the Behav-ioral Sciences. Lawrence Erlbaum Associates, Inc.Publishers: Mahwah, New Jersey and London.

Coricelli F. 1998. Macroeconomic Policies and the Devel-opment of Markets in Transition Economies. CentralEuropean University Press: Budapest.

Cuervo-Cazurra A, Dau L. 2009. Promarket reforms andfirm profitability in developing countries. Academy ofManagement Journal 52: 1348–1368.

Curran P, Obeidat K, Losardo D. 2010. Twelve frequentlyasked questions about growth curve modeling. Journalof Cognitive Development 11(2): 121–136.

Dadush H, Dasgupta D, Uzan M. 2000. Private CapitalFlows in the Age of Globalization: The Aftermath ofthe Asian Crisis. Edward Elgar Publishing Limited:Cheltenham, UK.

Darrat A. 1990. Stock returns, money, and fiscal deficits.Journal of Financial and Quantitative Analysis 25:387–398.

De Massis A, Frattini F, Pizzurno E, Cassia L. 2013.Product innovation in family versus non-family firms:an exploratory analysis. Journal of Small BusinessManagement. DOI: 10.1111/jsbm.12068.

Ding Y, Zhang H, Zhang J. 2008. The financial and operat-ing performance of Chinese family-owned listed firms.Management International Review 48(3): 297–318.

Dollar D, Kraay A. 2004. Trade, growth, and poverty.Economic Journal 114: F22–F49.

Enders C, Tofighi D. 2007. Centering predictor variablesin cross-sectional multi-level models: a new look at anold issue. Psychological Methods 12(2): 121–138.

Faccio M, Lang L. 2002. The ultimate ownership ofWestern European corporations. Journal of FinancialEconomics 65(3): 365–395.

Farhauer O, Kroll A. 2012. Diversified specializa-tion: going one step beyond regional economics’specialization-diversification concept. Jahrbuch fürRegionalwissenschaft 32(1): 63–84.

Fisher G. 2012. Economic growth and investor returns:the great disconnect. Forbes. Available at: http://www.forbes.com/sites/greggfisher/2012/01/11/economic-growth-and-investor-returns-the-great-disconnect/

Gedajlovic E, Carney M. 2010. Markets, hierarchies, andfamilies: toward a transaction cost theory of the familyfirm. Entrepreneurship Theory and Practice 34(6):1145–1172.

Gedajlovic E, Carney M, Chrisman J, Kellermanns F.2012. The adolescence of family firm research: takingstock and planning for the future. Journal of Manage-ment 38: 1010–1037.

Gedajlovic E, Lubatkin M, Schulze WS. 2004. Crossingthe threshold from founder management to professionalmanagement: a governance perspective. Journal ofManagement Studies 41(5): 899–912.

Godoy S, Stiglitz S. 2007. Growth, initial conditions, lawand speed of privatization in transition countries: 11years later. In Transition and Beyond, Estrin S, Kolodko

G, Uvalic M (eds). Palgrave Macmillan: Basingstoke,UK.

Gomez-Mejia LR, Makri M, Larraza-Kintana M. 2010.Diversification decisions in family-controlled firms.Journal of Management Studies 47(2): 223–252.

Havrylyshyn O. 2007. Fifteen Years of Transformation inthe Post-communist World: Rapid Reformers Outper-formed Gradualists. Cato Development Policy Analy-sis Series Paper No. 4. International Monetary Fund:Washington, DC.

Henning C, Lu X. 2000. The political foundation of Chi-nese style gradualism: a paradox of too strong privateinterests? Journal of Institutional and Theoretical Eco-nomics 156(1): 35–59.

Heybey B, Murrell P. 1999. The relationship betweeneconomic growth and the speed of liberalization duringtransition. Journal of Policy Reform 3(2): 121–137.

Hitt M, Beamish P, Jackson S, Mathieu J. 2007. Buildingtheoretical and empirical bridges across levels: multi-level research in management. Academy of Manage-ment Journal 50(6): 1385–1399.

Hoskisson R, Eden L, Lau C, Wright M. 2000. Strategy inemerging economies. Academy of Management Journal43: 249–267.

Hou K, Robinson D. 2006. Industry concentrationand average stock returns. Journal of Finance 61:1927–1956.

Hurt M, Hurt-Warski S, Roux-Dufort C. 2000. HerbapolLublin: a polish company privatizes and leans to dobusiness in a market economy. EDHEC Gradual Schoolof Management Case, No. 300-141-1.

Illner M. 1998. The changing quality of life in apost-Communist country: the case of Czech Republic.Social Indicators Research 43(1): 141–170.

Indart G. 2004. Economic Reforms, Growth, and Inequalityin Latin America. Ashgate Publishing Ltd.: Aldershot,UK, Burlington, VT.

Invest Guangzhou. 2011. Leading SOEs to spur Guang-dong’s industry upgrading. Bureau of Foreign Tradeand Economic Cooperation of Guangzhou Munici-pality. Available at: http://www.investguangzhou.gov.cn/web/eng/jsp/content/content_detail.jsp?catEncode=001006003003&contentId=28521 (accessed 5 January2014).

Ireland D, Tihanyi L, Webb J. 2008. A tale of two politico-economic systems: implications for entrepreneurship inCentral and Eastern Europe. Entrepreneurship Theoryand Practice 32(1): 107–130.

Irvine P, Pontiff J. 2009. Idiosyncratic return volatility,cash flows, and product market competition. Review ofFinancial Studies 22(3): 1149–1177.

Jensen M. 1986. Agency costs of free cash flow, corporatefinance, and takeovers. American Economic Review76(2): 323–330.

Jiang Y, Peng M. 2011. Are family ownership and controlin large firms good, bad, or irrelevant? Asia PacificJournal of Management 28: 15–39.

Jilin Press Release. 2013. Jilin province’s highlight-ing of the development of the private economymeeting held. Available at: www.noodls.com/view/764754A6144E844FD5F204D775048FDFAC3435C1?8574xxx1361935803.



Jones M, Coviello N. 2005. Internationalization: concep-tualizing an entrepreneurial process of behavior overtime. Journal of International Business Studies 36:284–303.

Kappes I, Schmid T. 2013. The effect of family governanceon corporate time horizons. Corporate Governance: AnInternational Review 21(6): 547–566.

Khanna T, Palepu K. 1997. Why focused strategies may bewrong for emerging markets. Harvard Business Review75(4): 41–51.

Kim H, Kim H, Hoskisson R. 2010. Does market-orientedinstitutional change in an emerging economymake business-group affiliated multinationals? Aninstitution-based view. Journal of InternationalBusiness Studies 41: 1141–1160.

Krueger J. 2004. Meant Well, Tried Little, FailedMuch: Policy Reforms in Emerging Market Economies.Roundtable Lecture at Economics Honors Society, NewYork University: New York. Available at: www.imf.org/external/np/speeches/2004/032304a.htm.

Krugman P. 1991. Geography and Trade. MIT Press:Cambridge.

Kueh Y. 2012. Pax Sinica: Geopolitics and Economicsof China’s Ascendance. Hong Kong University Press:Hong Kong, People’s Republic of China.

Langfitt F. 2008. “Made in China” is cheap no more.NPR. Available at: http://www.npr.org/templates/story/story.php?storyId=65080288 (accessed 5 January2014).

La Porta R, Lopez-de-Silanes F, Shleifer A. 1999. Corpo-rate ownership around the world. Journal of FinanceLIV(2): 471–517.

La Porta R, Lopez-de-Silanes F, Shleifer A, Vishny R.2002. Investor protection and corporate valuation. Jour-nal of Finance 57: 1147–1170.

Lau L, Qian Y, Roland G. 2000. Reform without losers: aninterpretation of China’s dual track approach to transi-tion. Journal of Political Economy 108(1): 120–143.

Lawless M, Anderson P. 1996. Generational technologicalchange: effects of innovation and local rivalry onperformance. Academy of Management Journal 39(5):1185–1217.

Levene H. 1960. Robust tests for equality of variances.In Contributions to Probability and Statistics: Essaysin Honor of Harold Hotelling, Olkin I, Ghurye SG,Hoeffding W, Madow WG, Mann HB (eds). StanfordUniversity Press: Menlo Park, CA; 278–292.

Li X. 2006. Assessing the Extent of China’s Marketization.Ashgate Publishing Company: Hampshire, England.

Li K, Griffin D, Yue H, Zhao L. 2011a. National culture andcapital structure decisions: evidence from foreign jointventures in China. Journal of International BusinessStudies 42(4): 477–503.

Li K, Wang T, Cheung Y, Jiang P. 2011b. Privatizationand risk sharing: evidence from the split share structurereform in China. Review of Financial Studies 24(7):2499–2525.

Lieberman M, Montgomery D. 1988. First-mover advan-tages. Strategic Management Journal 9(1–2): 41–58.

Lin Z. 1998. Conclusion—provincial leadership andreform: lessons and implications for Chinese politics.In Provincial Strategies of Economic Reform in

Post-Mao China, Cheung P, Chung J, Lin Z (eds).M. E. Sharpe, Inc: Armonk, NY and London.

Lipton D, Sachs J, Fischer S, Kornai J. 1990. Creating amarket economy in Eastern Europe: the case of Poland.Brookings Papers on Economic Activity 1: 75–147.

Liu Y, Lu S, Chen Y. 2013. Spatio-temporal change ofurban-rural equalized development patterns in Chinaand its driving factors. Journal of Rural Studies 32:320–330.

Liu W, Yang H, Zhang G. 2012. Does family business excelin firm performance? An institution-based view. AsiaPacific Journal of Management 29(4): 965–987.

Lockwood B. 2004. How robust is the Kearney/ForeignPolicy Globalization index? World Economy 27(4):507–523.

López-de-Silanes F, La Porta R, Shleifer A, Vishny R.1998. Law and finance. Journal of Political Economy106(1998): 1113–1155.

Lown C, Morgan D. 2006. The credit cycle and thebusiness cycle: new findings using the loan officeropinion survey. Journal of Money, Credit, and Banking38(6): 1575–1597.

Lowry M, Officer M, Schwert W. 2010. The variabilityof IPO initial returns. Journal of Finance LXV(2):425–466.

Luo X, Chung C. 2012. Filling or abusing the institutionalvoid? Ownership and management control of publicfamily businesses in an emerging market. OrganizationScience 24(2), 591–613.

McMillan J, Woodruff C. 2002. The central role ofentrepreneurs in transitional economies. Journal ofEconomic Perspectives 16(3): 153–170.

Meyer K, Estrin S, Bhaumik S, Peng M. 2009. Institutions,resources, and entry strategies in emerging economies.Strategic Management Journal 30(1): 61–80.

Meyer KE, Nguyen HV. 2005. Foreign investment strate-gies and sub-national institutions in emerging markets:evidence from Vietnam. Journal of Management Stud-ies 42(1): 63–93.

Miller D. 2006. Technological diversity, related diversifi-cation, and firm performance. Strategic ManagementJournal 27: 601–619.

Miller D, Le Breton-Miller I, Lester R. 2010. Family own-ership and acquisition behavior in publicly traded com-panies. Strategic Management Journal 31: 201–223.

Miller D, Lee J, Chang S, Le Breton-Miller I. 2009.Filling the institutional void: the social behavior andperformance of family versus non-family technologyfirms in emerging markets. Journal of InternationalBusiness Studies 40(5): 802–817.

Mosakowski E, Early P. 2000. A selective review oftime assumptions in strategy research. Academy ofManagement Review 25(4): 796–812.

Murrell P. 1992. Evolutionary and radical approachesto economic reform. Economics of Planning 25(1):79–95.

Newman KL. 2000. Organizational transformation dur-ing institutional upheaval. Academy of ManagementReview 25(3): 602–619.

North D. 1990. Institutions, Institutional Change, &Economic Performance. Cambridge University Press:Cambridge, UK.



Park S, Li S, Tse D. 2006. Market liberalization andfirm performance during China’s economic transition.Journal of International Business Studies 37: 127–147.

Patel P, Chrisman J. 2014. Risk abatement as a strategy forR&D investments in family firms. Strategic Manage-ment Journal, DOI: 10.1002/smj.2119.

Peng M. 2003. Institutional transitions and strategicchoices. Academy of Management Review 28(2):275–296.

Peng M. 2004. Outside directors and firm performanceduring institutional transitions. Strategic ManagementJournal 25(5): 453–471.

Peng M, Jiang Y. 2010. Institutions behind family owner-ship and control in large firms. Journal of ManagementStudies 47(2): 253–273.

Peng M, Sun S, Pinkham B, Chen H. 2009. Theinstitution-based view as a third leg for a strategyTripod. Academy of Management Perspectives 23(4):63–81.

Peng M, Wang D, Jiang Y. 2008. An institution-based viewof international business strategy: a focus on emergingeconomies. Journal of International Business Studies39(5): 920–936.

Qian C, Cao Q, Takeuchi R. 2013. Top management teamfunctional diversity and organizational innovation inChina: the moderating effects of environment. StrategicManagement Journal 34(1): 110–120.

Raab M, Ruland M, Schönberger B, Blossfeld H, HofäckerD, Buchholz S, Schmelzer P. 2008. Global Index.International Sociology 23(4): 596–631.

Rodríguez F, Rodrik D. 2001. Trade policy and economicgrowth: a skeptic’s guide to the cross-national evidence.In NBER Macroeconomics Annual 2000 (Volume 15),Bernanke B, Rogoff KS (eds). MIT Press: Cambridge,MA; 261–338.

Sachs J, Warner A. 1995. Economic reform and the processof global integration. Brookings Papers on EconomicActivity 1: 1–118.

Schaffer M, Stillman S. 2010. xtoverid: stata moduleto calculate tests of overidentifying restrictions afterxtreg, xtivreg, xtivreg2 and xthtaylor. Available at:http://ideas.repec.org/c/boc/bocode/s456779.html(accessed 17 May 2014).

Schoueten M, Siems M. 2010. The evolution of ownershipdisclosure rules across countries. Journal of CorporateLaw Studies 10(2): 451–483.

Schulze W, Lubatkin M, Dino R, Buchholtz A. 2001.Agency relationships in family firms: theory and evi-dence. Organization Science 12(2): 99–116.

Scott W, Dearing E. 2012. A longitudinal study ofself-efficacy and depressive symptoms in youth of aNorth American Plains tribe. Development and Psy-chopathology 24: 607–622.

Singer J, Willett J. 2003. Applied Longitudinal DataAnalysis: Modeling Change and Event Occurrence.Oxford University Press: Oxford, UK.

Sirmon D, Arregle J, Hitt M, Webb J. 2008. The role offamily influence in firms’ strategic responses to threatof imitation. Entrepreneurship Theory and Practice 32:979–998.

Spatial Explorer of Religion. 2013. Available at:http://chinadataonline.org/religionexplorer/religion39/#.(accessed October 2013).

Svejnar J. 1991. Microeconomic issues in the transition toa market economy. Journal of Economic Perspectives5(4): 123–138.

Stiglitz J. 2002. Globalization and its Discontents. Norton:New York and London, UK.

Thrash T, Maruski L, Fryer J, Cassidy S, Ryan R. 2010.Mediating between the muse and the masses: inspira-tion and the actualization of creative ideas. Journal ofPersonality and Social Psychology 98(3): 469–487.

Tirole J. 1988. The Theory of Industrial Organization. MITPress: Cambridge.

Verbeke A, Kano L. 2010. Transaction cost economics(TCE) and the family firm. Entrepreneurship Theoryand Practice 34: 1173–1182.

Vermeulen E. 2012. Beneficial ownership and control:a comparative study, disclosure, information, andenforcement. In OECD Russia Corporate GovernanceRoundtable, March 2012 Technical Seminar. Moscow,Russia.

Villalonga B. 2004. Intangible resources, Tobin’s Q, andsustainability of performance differences. Journal ofEconomic Behavior and Organization 54(2): 205–230.

Villalonga B, Amit R. 2006. How do family ownership,control and management affect firm value? Journal ofFinancial Economics 80(2): 385–417.

Villalonga B, Amit R. 2009. How are U.S. familyfirms controlled? Review of Financial Studies 22(8):3046–3091.

Walter J, Kellermanns F, Lechner C. 2012. Decision mak-ing within and between organizations: rationality, poli-tics, and alliance performance. Journal of Management38(5): 1582–1610.

Wan WP, Hoskisson RE. 2003. Home country environ-ments, corporate diversification strategies, and firmperformance. Academy of Management Journal 46(1):27–45.

Wan W, Yiu D. 2009. From crisis to opportunity:environmental jolt, corporate acquisitions, and firmperformance. Strategic Management Journal 30:791–801.

Wang X, Fan G, Zhu H. 2007. Marketisation in China,progress and contribution to growth. In China: LinkingMarkets for Growth, Garnaut R, Song L (eds). Aus-tralian National University E Press [u.a.]: Canberra,Australia; 30–44. ISBN: 9780731538133.

Watson A. 1998. Enterprise Reform and EmploymentChange in Shaanxi Province. Center for Asian Studiesat the University of Adelaide: Adelaide, Australia.

Wei Y, Fan C. 2000. Regional inequality in China: a casestudy of Jiangsu province. Professional Geographer52(3): 455–469.

Weidenbaum M. 1996. The Chinese family businessenterprise. California Management Review 38(4):141–156.

Werner S, Tosi H, Gomez-Mejia L. 2005. Organizationalgovernance and employee pay: how ownership struc-ture affects the firm’s compensation strategy. StrategicManagement Journal 26: 377–384.



Williamson J. 1990. Latin American Adjustment: HowMuch has Happened? Institute for International Eco-nomics: Washington, DC.

Wright M, Filatotchev I, Hoskisson RE, Peng MW. 2005.Strategy research in emerging economies: challeng-ing the conventional wisdom. Journal of ManagementStudies 42: 1–33.

Wooldridge J. 2002. Econometric Analysis of CrossSection and Panel Data. MIT Press: Cambridge, MA.

Xia J, Boal K, Delios A. 2009. When experience meetsnational institutional environmental change: foreignentry attempts of U.S. firms in the Central and East-ern European region. Strategic Management Journal30(12): 1286–1309.

Xu D, Meyer K. 2013. Linking theory and context: ‘strat-egy research in emerging economies’ after Wrightet al. (2005). Journal of Management Studies, 50(7):1322–1346.

Yan J, Sorenson R. 2006. The effect of Confucian values onsuccession in family business. Family Business Review19: 235–250.

Yefang H. 2008. Guangxi. In The Pan-Pearl River Delta:An Emerging Regional Economy in a Globalizing

China, Yeung YM, Jianfa S (eds). The Chinese Univer-sity of Hong Kong: Hong Kong.

Zellweger T, Kellermanns F, Chrisman J, Chua J.2012. Family control and family firm valuationby family CEOs: the importance of intentions fortransgenerational control. Organization Science 23(3):851–868.

Zhang X, Tan K-Y. 2007. Incremental reform and distor-tions in China’s product and factor markets. World BankEconomic Review 21(2): 279–299.

Zhao Z. 2012. Jilin province GDP for 2011 surpasses 1 tril-lion Yuan. China Daily 9 February 2012. Available at:www.chinadaily.com.cn/specials/jilin20120209.pdf.

SUPPORTING INFORMATION

Additional supporting information may be foundin the online version of this article:

Table S1. Scope of pro-market reforms in China’sprovinces.


Banalieva et al-2015-Strategic Management Journal

Documents

Transcript of Banalieva et al-2015-Strategic Management Journal