Institutional Complexity and Corporate Environmental Investments: Evidence from China's Mixed-Ownership Reform of State-Owned Enterprises

Huiying Li, Yu Chang, Xinchun Wang and Nan Zhang

Management and Organization Review, 2024, vol. 20, issue 5, 716-747

Abstract: While environmental concerns are increasingly driving firms’ strategic decisions, insights into why firms make heterogeneous environmental investments are limited. Taking an institutional view, we explore the effect of institutional complexity resulting from multiple but incongruent institutional logics within an organization on firms’ environmental investments. Using China's mixed-ownership reform as a research context, we identify a unique condition in which institutional complexity arises as the privatization process results in two coexisting but incongruent institutional logics – namely, state and financial logic. We further propose that privatization plays both enabling and constraining roles in state-owned enterprises’ (SOEs’) strategic decisions about environmental investments, depending on the relative dominance of each institutional logic, resulting in an inverted U-shaped relationship between privatization and environmental investments. Moreover, we examine the moderating effects of CEO background characteristics and firms’ external environmental context to uncover how these factors influence the relative dominance of state or financial logic in privatized SOEs, thereby reshaping SOEs’ environmental investments. Analyses of multisource panel data from Chinese listed SOEs from 2013 to 2020 support our theoretical propositions. The findings contribute to the literature on how institutional factors affect firm environmental practices and provide new insights to better understand the influence of institutional complexity on firm strategic actions.

Date: 2024
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