How private enterprises establish organizational legitimacy in China's transitional economy

Abstract

PurposeThe purpose of this paper is to reveal how Chinese private entrepreneurs behaved in a transition economy with a weak institutional environment to obtain organizational legitimacy.Design/methodology/approachDrawing on five consecutive nation‐wide surveys from 1997 to 2006 in China, the study provides empirical evidence and theoretical explanation on private entrepreneurs' behaviors in obtaining organizational legitimacy in China's transition economy.FindingsThe paper finds that the institutional environment in China's transition economy for private firms was weak. Specifically, weak property protection and Three Payouts showed a high risk of property confiscation for private firms; an under‐developed (discriminatory) financial system and a weak credit system had been big obstacles for the development of private firms, which resulted in debt chain among firms, a substitution for the weak financial system. Under such a hostile institutional environment where firms have been facing a high risk of organizational legitimacy, private entrepreneurs have great willingness to connect with government officers, participate in PC or CPPCC which are likely be politically connected, employ isomorphism in organizational structure, apply government‐oriented corporate social responsibility behaviors, on which they depend to obtain organizational legitimacy in transitional economy.Originality/valueThe paper exhibits the institutional environment in the past ten years in China's transition economy, and proposes the likely ways in which private entrepreneurs choose to establish legitimacy under a weak institutional environment.