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Do private enterprises outperform state enterprises in an emerging market? The importance of institutional context in entrepreneurship

Christopher Boudreaux

MPRA Paper from University Library of Munich, Germany

Abstract: Do private-owned enterprises (POEs) outperform state-owned enterprises (SOEs) in an emerging market? Due to political and social connections, SOEs have several advantages over POEs in emerging markets and transition economies, but we hypothesize that these advantages wane in pro-market institutional environments that prioritize market competition, rule of law, and the rewards to profitable enterprise. In this study, therefore, we explore how institutional quality moderates the relationship between privatization and 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 Bank’s Enterprise Survey of entrepreneurs in China, our results suggest that POEs outperform SOEs but only in environments with high-quality market institutions. In environments with low-quality market institutions, SOEs outperform POEs.

Keywords: privatization; institutional quality; entrepreneurship; China; agency theory; entrepreneurial cognition theory (search for similar items in EconPapers)
JEL-codes: L2 L26 M2 M21 P12 P2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-sbm and nep-tra
Date: 2019-03-30
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