When Does Management Develop? External Linkages, Structured Practices, and Productivity in Chinese Firms

Abstract

This study presents evidence that structured management practices and their relationship to productivity can vary with a firm's external institutional linkages. Combining ideas from new institutionalism with the empirical management literature, we formulate propositions of how external linkages could affect the development and utility of structured management practices. We test these propositions in a representative sample of 390 manufacturing firms in China, where state linkages, proxied by controlling ownership, stabilize operating conditions for a subset of government-owned firms in the country's authoritarian capitalist system. Specifically, we find that measures of structured management practices increase with the strength of linkages to the state, with state-owned firms scoring higher than domestic private firms. We further show that, on average, a firm's overall management practice score is positively and significantly related to total factor productivity (TFP) in state-owned firms, but the correlation is no different from zero in both domestic and foreign private firms. We hypothesize that in China state linkages may lengthen decision horizons and enable firms to benefit from introducing management practices for both instrumental and symbolic reasons.