State-owned Enterprise System And Deconstruct The Motives And Mechanisms

The issue 'how do firms restructure themselves in response to institutional change? has become a focus of strategic management research, especially in the context of transition economies. Since the early 1980s, transition toward market-based institution has largely reshaped the 'rules of game' for incumbent organizations in former planned economies. One of their key challenges is to restructure themselves to a turbulent institutional environment. The incompleteness and misalignment of institutions during the 'institutional upheaval' raise the uncertainties faced by the organization. Moreover, restructuring requires departure from established routines, and disconnection from the residual structures of the old institutional framework. This process may create new ambiguities and cognitive challenges that may undermine its legitimacy.Hence, the essential question is 'how do organizations play the new game when the new rules are not completely known?'. In view of the extensive 'institutional voids' and associated risks, it may be surprising that firms at all disengage from the old institutional structure and adapt new procedures to fit new, yet ambivalent, rules of the game. Thus, we investigate, under what conditions firms are more likely to engage in restructuring when facing incomplete rules of game.To address this question, we investigate the conditions under which Chinese state owned enterprises (SOEs) engage in privatization between 1998 and 2006, the probably most important institutional transition. Privatization, defined as 'any measure that transfers some or all of the ownership and/or control over SOEs to the private sector', has been extensively studied from both economic and organizational perspectives. This research has mainly focused on post-privatization restructuring and outcomes, while few studies have investigated the antecedents of privatization. In particular, we still lack of sound theories and empirical evidence to explain why some firms are more likely than others to be privatized. This challenge we take in this research. Introducing a new perspective into privatization and transitional research, we apply and advance institutional theory to argue that privatization is not only an efficiency-based process but also a complex institution-based process, which is highly embedded in the firm's internal and external environment. We argue that privatization evokes a process of deinstitutionalization, defined as 'the process by which institutions weaken and disappear', which fundamentally changes the former SOEs' form of organizing as well as its relationships with the environment. We explore the antecedents of privatization as a deinstitutionalizing process, especially in a distinct institutional environment characterized as co-existence of two competing systems, state-based and market-based systems. We find that (a) the extent to which firms are embedded in the state-based system plays a direct role in buffering their conversion to private sector, while (b) efficiency-based pressures push privatization when the survival of the organization is threatened. Yet, efficiency-based pressures do not necessarily lead to organizations' abandoning state ownership as it is contingent on both institutional and resource characteristics of SOEs. We argue that the uncertainty arising from incomplete and misaligned institutions create institutional and resources contingencies that shape the privatization process.This research offers four contributions to the literature. First, while large part of literature on privatization considers privatization as given and focus on the post-stage of privatization, we empirically examine the antecedents of privatization. Second, responding to the call by institutional theorists to 'place studies of deinstitutionalization in a broader context of institutional change', we empirically examine a set of factors influencing deinstitutionalization of state-ownership in a context of co-existent competitive systems and logics. Third, we further examine the effect of slack resources on institutional change, thus extending institutional theory by explicating the role of behavioral influences on deinstitutionalizing processes. Fourth, where most of privatization and restructuring research has analyzed context of radical institutional change in Central and Eastern Europe (CEE), we extend the research in the incremental change context of China, which is characterized by the co-existence of two competing systems rather than one systems replacing with another.