China's state-guided economic miracle has revitalized a long-standing and unsettled debate about the role of government in transformative economic development. In a firm-level study of corporate governance we examine whether direct state involvement actually makes a positive contribution to the economic performance of newly incorporated firms in China's urban economy. We show that direct intervention into the governance of firms is likely to yield negative economic effects at the firm level. We infer from our findings that it must be other types of government intervention external to the firm that explain the success of China's developmental state in promoting rapid economic growth.

The proliferation of new property rights regimes in transitional economies provided an opportunity to examine the interaction between institutions and organizations. Some private enterprises in China developed the Red Hat strategy whereby they disguised their private ownership by registering as a public-owned organization. Drawing on a national survey, this study investigated how institutional variations, transaction costs and social embeddedness affected the firms’ Red Hat strategy. The findings suggest that private firms preferred a fuzzy property rights arrangement in the early years of market transition. The temporal and regional variation of the institutional environment contributed to the adoption of the Red Hat strategy. High transaction costs — networking cost and resource constraints — were positively related to the adoption of the Red Hat strategy. Social embeddedness also played an important role. The reliance on transaction partners in the public sector increased the pressure to adopt the Red Hat, while connections with high-ranking cadres facilitated the process. However, private firms opted for clearly delineated property rights as the institutional environment improved. In turn, the decisions of individual firms affected the institutional environment at the aggregate level. The Red Hat strategy exemplifies the co-evolution of institutional change and organizational dynamics.

Meso-institutions are weak, intermediate forms of institutions that bridge the gap between institutional disintegration and the development of new, more firmly established institutions. Meso-institutions lack the stronger behaviour-guiding signs and symbols of more established institutions, but instead contain fragments of former institutions mixed with emerging, but fragile, components of developing institutions. Institutional disintegration leads to a disorienting period characterized by the dissolution of fundamental, widely held ideologies. This offers an opportunity for actions rather than institutions to guide actions. Because meso-institutions are weak, only after actions are repeated will they solidify into specific patterns that may be retrospectively granted legitimacy. Using archival data supplemented by interviews, we identified three meso-institutional occurrences with the phenomenologically based manifestations of fractured ideology, actions as rules and retrospective legitimization.

High levels of trust and shared vision contribute to collaborative behaviour among units belonging to the same corporation. We examined the relationship of language fluency and socialization mechanisms to inter-unit shared vision and trustworthiness, using a sample of 310 inter-unit relationships involving subsidiaries of multinational corporations located in China and Finland. Results show that language fluency related significantly to shared vision and perceived trustworthiness in both the Chinese and Finnish subsidiaries. We also found socialization mechanisms to have a positive relationship to shared vision in the Chinese but not the Finnish sample, and no significant relationship to perceived trustworthiness in either sample. The interaction effects of language fluency and socialization mechanisms produced different results in the Chinese and Finnish samples. The study confirmed the importance of language fluency for inter-unit relationships and offered several suggestions for future research.

In this paper we introduce the concept of ’polycontextuality,’ which refers to multiple and qualitatively different contexts embedded within one another. We distinguish polycontextuality from the singularly contextual types of description typically provided by social scientists, and use the case of China to elucidate polycontextual phenomena. Polycontextuality can include verbal- and non-verbal nuances whose understanding is rooted in local, cognitive, emotional and even spiritual references -most of which cannot be easily observed or historically studied. For this reason we recommend the polycontexual sensitive research method to supplement the scientific deductive research typically designed to study observable phenomena based on a singular context (e.g. verbal) that are controllable by the researcher's stimuli and/or measures. Actions for increasing scholars’ polycontextual sensitivity are suggested, and guidelines for the scholar interested in doing high quality indigenous research are offered, using the case of China for illustrative purposes.