The effects of newly emergent non–state-controlled Chinese firms adapting an established practice from state-owned organizations: evidence of symbolic compliance from a natural experiment

Abstract

ABSTRACT We examine the puzzling observation of newly emergent Chinese non–state-controlled enterprises (NSCEs) adapting the long-established practice from state-controlled organizations of inviting state officials for general nontechnical and nonregulatory visits and then publicizing these visits in the media even though such visits impose significant costs on these firms. This context is unique and allows for a natural experiment in which newly emergent organizations that lack inherent legitimacy and cannot undertake substantial identification resort to symbolic compliance to enhance legitimacy. We show that these visits result in better operating and market performance, and reduce the risk in the visited NSCEs. We interpret this result as providing evidence that symbolic compliance is effective to enhance legitimacy.