Institutional environment, public-private hybrid forms, and entrepreneurial reinvestment in a transition economy

Abstract

Many less developed and, especially, transition economies have had high levels of entrepreneurial reinvestment for relatively long periods despite the absence of developed government institutions. To resolve this puzzle, this study proposes that many entrepreneurial firms in these economies have been actively engaged in political activities, through which organizational arrangements are created to co-opt government agencies into their organizational structures to manipulate and even control unfavorable institutional environments. It empirically evaluates the role of one such organizational arrangement – public-private hybrid forms – in China's gradual reform period. It suggests that, through protecting property rights and facilitating access to key resources and opportunities, public-private hybrid forms may act as a substitute for deficient market and legal institutions, thus facilitating entrepreneurial reinvestment. The findings from a national sample of Chinese entrepreneurial firms support our propositions. In general, entrepreneurial firms adopting public-private hybrid forms enjoy higher entrepreneurial reinvestment rates than pure private firms during gradual reform; and this may be the case because such forms help to both protect private property rights and access key resources and opportunities. In addition, the association between the forms and reinvestment rate is found higher under less developed government institutions.