A Study On Organizational Legitimacy Strategies Of Private Enterprises In China Transitional Economy

Organizational Legitimacy which defined as the acceptance of the organization by its stakeholders, has been proposed vital for organizational survival and success. It is especially vital for private firms based on transition economies with a weak institutional environment (Ahlstrom & Bruton, 2001). This dissertation reveals how private enterprises manage to obtain organizational legitimacy in China's transition economy and what in turn they get from concern with firm performance. This dissertation firstly formulate theoretical predictions about the legitimate strategies are influenced by the institutional environment in which the firm is embedded, by examining the effects of institutional environment on choice of firms'legitimate strategies (political connection, organizational structure isomorphism and corporate social responsibility), then investigate the relationship between these legitimate strategies and firm performance(resources obtaining). The hypotheses in this dissertation are tested with nationwide surveys of privately owned enterprises in China,and finally one typical case is employed to tell private firm legitimating process with its development story. The results show that: (1) Private enterprises facing high risk of organizational legitimacy in transitional economy, thus with high demand of legitimacy; (2) the institutional environment has high transition cost generation features which increase the difficulty for private firms to obtain legitimacy; (3) The government regulators who have authority over an organization and public opinion both are key actors who can confer private firm legitimacy. Political connection and organizational structure isomorphism are the main ways to obtain political legitimacy. The willingness of political connection is influenced by institutional environment, the stronger the institutional environment is, the more powerful the government in confer legitimacy the entrepreneurs recognized, the entrepreneurs are more willing to be political connected. (4) Private firms are likely to be involved in philanthropic activities like philanthropic giving and Guangcai Projects, and these philanthropic activities are influenced by the institutional environment, these findings suggest that corporate philanthropy may be more a tool of legitimization than a measure of corporate social responsibility. (5)Organizational legitimacy strategies have significant influence on financial resources obtaining of private firms, even when the firm size, firm age, industry, profit status and entrepreneurs demography considered. Finally, this dissertation make conclusion and states the research limitation and future research implications. Finally, we end our review with a discussion of how a fuller understanding of the effects of governments on organizations can have practical applications not only in the realm of management, but also on public policy. Heretofore, government policy is developed with little understanding of the organizations and managements through which they are expected to operate. Here we draw attention to what a better understanding of the effects of governments on organizations and management can contribute to government policies and practices geared toward the creation, growth,and dispersion of national wealth.This dissertation is the first to investigate the mechanism of the effect of institutional environment on legitimate strategy. It advances the institution-based view of strategy by integrating it with resource-based considerations. The legitimating strategies like political connection and corporate social responsibility which sounds like cost generation are positive with firm performance is inconsistent with the proposition of Scott(1983) that the activities of organization in obtaining organizational legitimacy are inefficient, thus improve the previous institutional theory and gives new idea for modern corporate.