Abstract
We examine the role of ownership in organizational responses to performance shortfalls. State owners prize performance stability over being competitive, and their firms thus frame performance shortfalls differently than private firms do. In particular, state firms’ performance-stability orientation makes them respond to small performance shortfalls more readily than private firms do. They largely disregard performance comparisons with industry competitors, which more readily trigger divestitures at private firms. Comparisons among state firms matter relatively more. We find empirical support for these propositions in the population of Chinese state and private firms publicly traded in Shanghai and Shenzhen Stock Exchanges from 2003 to 2019. The frame-contingent responsiveness we document extends theory of organizational behavior and adds important nuance to our understanding of state-firm inertia.
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