Ownership and innovation during economic development: Corporate ownership and strategy formation in China

Innovation is critical to organizational survival, competitive advantage, and economic development. Yet the process by which innovative strategic behavior occurs is not well understood. This paper takes advantage of rapidly changing corporate governance structures and environmental conditions during China's economic transition to explore the role of corporate ownership in shaping firm innovation. We argue that managers draw on internal strengths within external constraints to develop strategies and that the nature of corporate ownership determines the degree to which internal or external factors are salient. We capitalize on differences between Chinese state-owned enterprises (SOEs) and collective enterprises and other non-state firms (CNFs) in the adoption of firm strategies during transition. Analyzing data from 1994 to 1999 on 800 Chinese firms, we study the effect of ownership type on the adoption of four key organizational innovations and identify major strategic groups that developed during reform. The findings provide important insight into the role of corporate governance in influencing strategy formation and adaptation, outcomes that are increasingly important in all economies.

Duke Scholars

Author Lisa A. Keister Sociology