Research On The Institutional Intervention And The Credit Selection

In the process of transition from the planned economy to the market economy in China, the market economy with the equivalent exchange as its core principles has challenged greatly on the traditional social order. When the economic system cannot adapt with social relations, it will led to kinds of social problems, such as the widespread social integrity anomie, especially the lack of credibility of enterprise which includes breach of contract, business fraud, product quality dishonesty, tax evasion, and other illegal operations in the capital market. which can cause heavy losses to the whole society including the enterprise, the industry and even the country. The problem of enterprise’s good credibility also can give threats to the people’s health and life and make damage to abnormal transaction rules, good social morals and values, even the social stability.The enterprise good credibility is very important to the sustained and healthy development of the market economy, and how to realize the enterprise good credibility has got more and more attentions from different perspectives. This dissertation studies on9dairy companies from Beijing, Neimeng, Hebei and Shannxi in4advantageous areas of Chinese dairy industry (the metropolitan suburbs, the northeast and Inner Mongolia region, the northern China and the northwestern China)by using literature research, case study, investigation and field research. Approaches to explore how enterprise gets credibility are as follow:(1) Good credibility problems depend on moral or institutional issues;(2) The necessity of institutional intervention;(3) Application of institutional intervention in the dairy enterprise development;(4) The relationship between good credibility and institutional intervention. The article firstly discusses the nature of enterprises and selections of enterprise good credibility. Then, the article discusses and assumes the relationship between institutional intervention and good credibility selections from the theoretical level, including good credibility selections from the influence path of institutional interventions to good credibility selections and practical effects of good credibility selections to institutional interventions. At last, there is an empirical and comparative study on the history and development of China’s dairy industry, the related institutional intervention, good credibility selections of dairy enterprises and the quality safety during the melamine matter.The research results are as follows:First of all, this dissertation discuss credibility is moral or formal institution. According to the definition and classification of Knous, institutions are social and behavioral rules, including a man-made system with consciousness such as political rules, economic rules and contracts, etc. Institutions also contain informal constraints that gradually formed with the spontaneous evolution and long-term social life, such as ideologies, values, beliefs, morals, ethics, customs and so on. Thus generally speaking, the integrity itself is a set of ethical practice rules. The realization of Integrity depends on not only the informal constraints like ideology and beliefs, but also formal institutions such as constraint-based laws, policies, contracts, regulations and so on.Secondly, realization of credibility needs support of institution besides market rules. The market mechanism itself also has a series of rules, but the perfect one is based on complete competition and rationality assumption. That is, the market can achieve the optimal allocation of resources through its pricing mechanism, and in all activities especially in economic activities, people follow the principles which are how to minimize the cost to obtain the established objectives. In the pursuit of individual interest, the market entity only focus on whether the behavior is the most effective means to their purpose, they do not care about whether the goal will damage the interests of others and society as long as they can bear the expected cost. However, the assumption of rational-economic man fundamentally ignores the externalities, the existence of information asymmetry and transaction cost and violates the essence of rationality, that is the social value of recognition of such activities and judging. Thus, except for the market mechanism, the integrity needs additional institutions, especially through the formal institutional intervention, but it does not mean that the deny for informal institutions. On the contrary, informal institutions provide values supporting formal institutions in the way.Finally, selection of enterprise for credibility is related to the institution intervention. From the view of economics, enterprise is an economic organization with production and transaction properties. It is also a series of connections consist of internal elements of contracts between the owners and the external contracts. From the view of laws, enterprise is a legal body with an independent interest. Both of these two views imply the following three meanings:Companies are economic organizations in order to pursue profits; The aim of companies is to reduce the cost of market prices; Companies have independent property interest and meaning ability. Therefore, companies have the ability to choose subjective strategies in economic activities, which is also called the ability of integrity selection. Consequently, there are interconnections and mutual influences between institutional intervention and integrity selection. On the one hand, institutional interventions can affect the integrity selections by competition among the institutional goal, corporate goal and integrity goal, which can increase the corporate income and the cost of dishonesty and punishment. On the other hand, the company’s choice of integrity has a converse influence to institutional interventions including rational expectations and integrity requirements caused by institutional arrangements and institutional environment, also the deviation of the main goal caused by dishonesty. Melamine contamination of dairy products in2008was a representative event of the market failure and government’s inefficient intervention. Thus, in order to ensure the sustainable development of China’s dairy industry, a great change has taken place in the terms of laws and regulations, policies, contracts and trade regulations before and after melamine events. The changes in these institutions not only lead the business integrity strategy changing from faithless to rationally trustworthy, but also enhance the lever of quality and safety of China’s dairy industry. That is to say that institution intervention and selection of enterprise for credibility interrelate and affect each other.Although the dissertation believes that the institution is the path to achieve integrity, it also discusses limitations of the institutional intervention due to the external factors such as market, technology and internal factors related the subject. Because of the existence of limitations, the integrity of dairy companies in China is still facing new risks.