Institutional Change in Authoritarian Settings: A Study of Environmental Penalties in China

Abstract

We examine institutional change processes in authoritarian settings and hypothesize how different types of institutional pressure can spur governmental action concerning firms’ environmental performance. Authoritarian states’ pursuit of maintaining legitimacy and retaining control is the key mechanism that shapes the efficacy of institutional pressures directed at the state. We test our conceptual model using a unique dataset of environmental penalties of Chinese publicly listed firms from 2007 to 2011. Our analyses reveal that in China, the pressures stemming from the agency of individuals or groups are less effective than pressures without individual agency in influencing governmental responses to corporate environmental issues, and discontinuous institutional pressures have less impact on governmental responses than continuous institutional pressures. We further identify key local factors such as the government’s bureaucratic capacity and privatization of the economy that moderate these relationships. Overall, these findings demonstrate that, in authoritarian settings, institutional pressures that raise attention to issues are more influential when they do not directly challenge the state. We discuss how our findings contribute to understanding processes of institutional change, outcomes of social movements, and the evolution of corporate environmentalism.