When does privatization spur entrepreneurial performance? The moderating effect of institutional quality in an emerging market

TL;DR

This study investigates how the quality of market institutions influences the impact of privatization on entrepreneurial sales performance in China, revealing that privatization benefits depend on institutional context.

Contribution

It introduces a nuanced model combining agency, cognition, and institutional economics to explain privatization effects in emerging markets.

Findings

POEs outperform SOEs in high-quality institutional environments

SOEs outperform POEs in low-quality institutional environments

Privatization effectiveness is context-dependent

Abstract

We explore how institutional quality moderates the effectiveness of privatization on entrepreneurs sales performance. To do this, we blend agency theory and entrepreneurial cognition theory with insights from institutional economics to develop a model of emerging market venture performance. Using data from the World Banks Enterprise Survey of entrepreneurs in China, our results suggest that private-owned enterprises (POEs) outperform state-owned enterprises (SOEs) but only in environments with high-quality market institutions. In environments with low-quality market institutions, SOEs outperform POEs. These findings suggest that the effectiveness of privatization on entrepreneurial performance is context-specific, which reveals more nuance than previously has been attributed.