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Organizational Imprinting and Response to Institutional Complexity: Evidence from Publicly-Traded Chinese State-Owned Firms in Hong Kong

June 2017
Management and Organization Review 13(02):345-373

June 2017
13(02):345-373

DOI:10.1017/mor.2016.54

Authors:

University of Manitoba

This study seeks to answer the following question: What are the organizational attributes that influence organizational responses to institutional complexity? Building on core ideas of organizational imprinting, I argue that organizational response is influenced by the imprint from the dominant logic of organizing during the founding period and from the institutional position an organization possessed at founding. Empirically, I examine the variation in board composition of Chinese state-owned firms listed in the Hong Kong Stock Exchange market. It is found that state-owned firms founded in the market logic dominant period tend to have more non-state directors on the board in that they were organized around the prescription of the market logic and more responsive to shareholders’ demands for legitimacy reasons. Besides, state-owned firms founded by central government agencies tend to have fewer non-state directors because they were born at the center of the socialist system to accomplish strategic goals of the central government and non-state directors may challenge the vested interests. This study contributes to the organizational imprinting and institutional literature and resonates with the contemporary call for a more systematic examination of organizational attributes that influence organizational responses to institutional complexity.

Board structure of Chinese listed SOEs

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Socialist versus market logics

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Descriptive statistics and Pearson correlations

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GEE results of predicting the number of non-state directors

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Management and Organization Review 13:2, June 2017, 345–373

doi: 10.1017/mor.2016.54

Organizational Imprinting and Response

to Institutional Complexity: Evidence from

Publicly-Traded Chinese State-Owned Firms

in Hong Kong

Yifan Wei

University of Illinois at Urbana-Champaign,USA

ABSTRACT This study seeks to answer the following question: What are the organizational

attributes that inﬂuence organizational responses to institutional complexity? Building on

core ideas of organizational imprinting, I argue that organizational response is inﬂuenced

by the imprint from the dominant logic of organizing during the founding period and

from the institutional position an organization possessed at founding. Empirically, I

examine the variation in board composition of Chinese state-owned ﬁrms listed in the

Hong Kong Stock Exchange market. It is found that state-owned ﬁrms founded in the

market logic dominant period tend to have more non-state directors on the board in that

they were organized around the prescription of the market logic and more responsive to

shareholders’ demands for legitimacy reasons. Besides, state-owned ﬁrms founded by

central government agencies tend to have fewer non-state directors because they were

born at the center of the socialist system to accomplish strategic goals of the central

government and non-state directors may challenge the vested interests. This study

contributes to the organizational imprinting and institutional literature and resonates with

the contemporary call for a more systematic examination of organizational attributes that

inﬂuence organizational responses to institutional complexity.

KEYWORDS board composition, institutional complexity, organizational imprinting,

state-owned ﬁrms

INTRODUCTION

The notion of institutional complexity has been explicitly recognized since the

introduction of institutional logics, which is deﬁned as the taken-for-granted

principles of organizing that provide prescription and appropriateness of actions to

organizations (Friedland & Alford, 1991; Thornton & Ocasio, 2008). Extant studies

on institutional complexity have shown that organizational ﬁeld is characterized

by multiple, even conﬂicting, institutional logics and organizations confront

incompatible prescriptions (Marquis & Lounsbury, 2007; Reay & Hinings, 2005).

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346 Y. Wei

Recent theoretical discussions paid closer attention to organizational responses to

institutional complexity and a few empirical studies demonstrated idiosyncratic

organizational responses to conﬂicting institutional demands (Battilana & Dorado,

2010; Reay & Hinings, 2009). More theoretical pieces outlined the generic

response strategies to institutional demands of different natures (Oliver, 1991;

Pache & Santos, 2010), but organizations in the theories were treated as

homogeneous and synchronic entities (Kraatz, 2009). While most recent studies

started to explore certain organizational attributes that inﬂuenced organizational

responses to institutional complexity (Luo, Wang, & Zhang, 2016), a more

systematic understanding on the organizational attributes formed throughout the

developmental history is needed (Greenwood, Raynard, Kodeih, Micelotta, &

Lounsbury, 2011).

This study will examine one of the key organizational attributes that mirrors

organizational history, the organizational imprint (Stinchcombe, 1965). Existing

studies on organizational imprinting have shown the persistence of imprint from

the founding environment (Kriauciunas & Kale, 2006; Marquis & Qian, 2014;

Peng, 2004; Shinkle & Kriauciunas, 2012), and explored certain components of the

founding environment, including the market, public policy, and culture (Johnson,

2007; Marquis & Huang, 2010). There are other essential components, however,

receiving little empirical attention, such as deep-seated beliefs and social structure

of the founding environment (Marquis & Tilcsik, 2013). Building on the extant

imprinting and institutional literature, I argue that organizational imprint can be

not only from the dominant logic of organizing, which founders rely on during the

founding period, but also from the central versus peripheral institutional position

that an organization possesses at founding (Battilana, Leca, & Boxembaum,

2009). Both components of the founding environment would shape organizational

imprints that inﬂuence organizational responses to institutional complexity.

Empirically, I examine the board composition of Chinese state-owned ﬁrms

listed on the Hong Kong Stock Exchange (HKSE) market. Though they are all

state-owned, some ﬁrms were founded during the socialist era and others were

founded in the transition period. Besides, some state-owned ﬁrms were founded

and controlled by central government agencies while others were founded and

controlled by local government agencies. Different founding periods and state

owners created different founding conditions that may leave socialist imprint on

state-owned ﬁrms’ boards to various degrees. When these state-owned ﬁrms went

public in the HKSE market, the market logic, as the pushing factor, required

more outside directors not afﬁliated with the socialist state because they were

believed to be more objective in the evaluation of the ﬁrm and helped to defend

shareholders’ ﬁnancial interests. The socialist logic, as the pulling factor, suggests

ﬁrms’ board members mainly come from people who built their entire careers in

the socialist bureaucracy to defend ﬁrms’ deeply entrenched structure and vested

interests. In this regard, state-owned ﬁrms listed on the HKSE market represent

an ideal context of institutional complexity to examine how ﬁrms’ imprints

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Organizational Imprinting and Response to Institutional Complexity 347

affect their board composition as responding to the conﬂicting institutional

demands.

I posit that the board composition of state-owned ﬁrms would be inﬂuenced

by ﬁrms’ imprint from the dominant logic of organizing during their founding

period and their institutional position at founding. State-owned ﬁrms founded in

the market logic dominant period are more receptive to the prescription of market

institutions and tend to have more outside directors than the ﬁrms founded in the

socialist logic dominant period. Moreover, state-owned ﬁrms founded by central

government agencies tend to have fewer outside directors than the ﬁrms founded

by local government agencies, since they were born at the center of the socialist

system with boards dominated by state directors to accomplish macroeconomic

and political goals of the central government and such strong socialist imprint

persisted after listing on the HKSE market.

This study promises to make the following contributions. First, it responds to

the contemporary theoretical call for more understanding on the inﬂuence of

organizational attributes on organizational responses to institutional complexity.

Particularly, I demonstrate the importance of organizational imprint in shaping

organizations’ strategic actions, thus complementing the extant literature in this

area. Second, this study helps to improve our understanding of imprinting theory.

I extend the theory by examining how the dominant logic of organizing during

the founding period, and the institutional position of an organization at founding,

inﬂuence contemporary organizational structures and behaviors. Third, my study

sheds light on comparative corporate governance by providing a more ﬁne-tuned

deﬁnition of outside directors in state-owned ﬁrms from emerging economies. It

allows us to see the nature of governance mechanisms in a comparative perspective.

This article proceeds as follows: I ﬁrst present the theoretical context

where my study is positioned, and then elaborate on the empirical setting.

Hypotheses regarding organizational imprint that inﬂuences state-owned ﬁrms’

board composition as the response to both socialist and market logic pressures

are developed, followed by the research design and results. Lastly, I discuss the

contributions and limitations of this study and outline directions for future research.

ORGANIZATIONAL IMPRINT AND RESPONSES

The recognition of institutional complexity can be traced back to the introduction

of institutional logics. Friedland and Alford (1991) conceptualized Western society

as an ‘inter-institutional system’ comprising ‘the capitalist market, bureaucratic

state, democracy, nuclear family, and Christian religion’ (1991: 232). Each sector

is associated with a distinctive institutional logic, which is ‘the axial principles

of organization and action based on cultural discourses and material practices

prevalent in different institutional or societal sectors’ (Thornton, 2004:2).In

this sense, organizations confront multiple institutional logics and are subject to

multiple or even incompatible demands.

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348 Y. Wei

The notion of institutional complexity has attracted increasing interest from

management scholars and generated numerous empirical research studies from

the institutional logics perspective (Thornton, Ocasio, & Lounsbury, 2012). It

has shown that organizational ﬁelds are usually characterized by multiple (often

two) logics, which impose different, and potentially conﬂicting, demands on

organizations and eventually shape organizational behaviors. For example, Reay

and Hinings (2005) observed the recomposition of the Alberta healthcare ﬁeld

was driven by the medical professionalism and business-like healthcare logics

and actors used their power to accomplish the shift from one dominant logic to

another. Lounsbury (2007) demonstrated how the trustee and performance logics,

rooted in different cities, shaped different mutual funds’ behavior to contract

with independent professional money management ﬁrms. Similarly, Marquis

and Lounsbury (2007) found the competition between the national bank and

community bank logics in the development of the US banking ﬁeld. Recently

Greenwood and his colleagues (2010) contributed to the exiting research by

examining the interplay of three institutional logics and showed how the regional

state logic and the family logic impacted organizational response to the overarching

market logic in Spain.

Recent theoretical development advocated a shift of attention to how

organizations strategically respond to and manage multiple logics and institutional

complexity (Greenwood et al., 2011). A few empirical works have demonstrated

idiosyncratic organizational responses to conﬂicting institutional demands

(Battilana & Dorado, 2010; Reay & Hinings, 2009). For example, Reay and Hinings

(2009) identiﬁed four mechanisms through which physicians and government

could collaborate inside organizations to manage rivalry logics to coexist for

a lengthy time. Using comparative inductive methods, Battilana and Dorado

(2010) showed that organizations developed a common organizational identity to

combine conﬂicting logics and formulate a hybrid one. These pioneering empirical

studies, however, focused on distinctive organizational responses in particular

contexts and did not develop theoretical models that can systematically examine

organizational responses to institutional complexity.

A more systematic effort was ﬁrst made by Oliver (1991), which proposed

a repertoire of strategies available to organizations as they faced institutional

pressures: acquiescence, compromise, avoidance, deﬁance, and manipulation.

But the outlined response strategies to institutional pressures are rather generic.

Building on Oliver’s (1991) work, Pache and Santos (2010) suggested a more

ﬁne-tuned model taking into consideration the nature of institutional demands

and the degree to which the demands were represented within organizations.

What Oliver (1991) and Pache and Santos (2010) have in common is their shared

assumption that organizational responses are collectively shaped and homogenized

by ﬁeld-level institutional pressures. Organizations, in their approach, are treated

as synchronic entities, rather than diachronic ones (Kraatz, 2009). The unique

organizational characteristics, which are formed throughout their developmental

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Organizational Imprinting and Response to Institutional Complexity 349

history and enable organizations to take different strategic actions towards multiple

institutional demands, received little attention.

In contrast, Kraatz and Block (2008) emphasize unique organizational charac-

teristics (e.g., identity) and agency facing institutional complexity. They provide

a detailed typology of organizational responses enabled by the organizational

identity: eliminating the tension of complexity by committing to a preferred

identity, balancing multiple demands by increasing cooperativeness among

identities, building new identities, or compartmentalizing multiple identities.

Hence organizations are not passive recipients of institutional demands, but rather

can exercise a certain level of strategic choices enabled by their characteristics.

Extending Kraatz and Block’s (2008) argument, Greenwood and his colleagues

(2011) emphasize the important role of organizational attributes in determining

organizational actions. It is argued that pressures from multiple institutional

demands do not affect all organizations equally because different organizations

possess different attributes or characteristics (e.g., identity, legacy of past conditions,

position in an institutional ﬁeld) that may shape organizational strategies and

actions. Thus, they call for more systematic theories of organizational responses

through examination of various organizational attributes. Most recent research has

examined the attributes that increased scrutiny from the conﬂicting institutional

constituencies, such as organizational size and institutional linkages (Luo et al.,

2016). This study also responds to Greenwood et al. (2011) and explores the

organizational attribute that mirrors the developmental history of organizations.

One such key organizational attribute is the organizational imprint

(Stinchcombe, 1965). The concept of imprinting that stemmed from studies on

animal behaviors was borrowed into organizational studies by Stinchcombe in

his classic 1965 essay, ‘Social Structure and Organizations’. Stinchcombe (1965)

suggested that initial organizational structures and features were shaped by the

socioeconomic conditions present at their founding and that these characteristics

would persist over time. Building on Stinchcombe’s seminal essay, Marquis and

Tilcsik (2013) identiﬁed three essential features of the imprinting process. The ﬁrst

is ‘the existence of a temporally restricted sensitive period’ (2013: 201) during which

focal organizations are highly susceptible to environmental inﬂuence. Second, the

environment exerts signiﬁcant inﬂuence on these organizations during the sensitive

period so that they develop characteristics that reﬂect prominent features of the

environment. Finally, these characteristics continue to persist despite subsequent

environmental changes. The imprinting concept has been widely applied in an

array of ﬁelds such as organizational ecology (Carroll & Hannan, 2004) and

institutional theory (Marquis & Huang, 2010) and become an important lens for

understanding organizational attributes.

Most studies on organizational imprinting focus mainly on the persistent effect

of imprint from the founding environment (Kriauciunas & Kale, 2006; Marquis &

Qian, 2014;Peng,2004; Shinkle & Kriauciunas, 2012). Some research has paid

attention to the essential components of the founding environment but focuses on

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350 Y. Wei

market environments (e.g., population density) directly related to organizations’

economic performance (Johnson, 2007). Relatively little research has examined

other components like public policy and culture (Marquis & Huang, 2010). As

Lounsbury and Ventresca stated, the institutional environment at founding is a

‘richly textured n-dimensional space in which organizations navigate’ (2002:3)

such that more essential components, particularly deep-seated beliefs and social

structure, are worthy of careful consideration.

In this study, I identify such two essential components of the founding

environment – the logics of organizing and institutional positions – and examine

how they shape organizational imprint. The ﬁrst component of the founding

environment is the ‘logics of organizing’ that founders relied on to build their

organizations (Baron, Burton, & Hannan, 1999). The founding environment

could be characterized by multiple logics of organizing, but one logic is dominant

over others in a certain period. Organizations tend to be more susceptible to the

inﬂuence of the dominant logic of organizing in order to achieve isomorphism

and relieve uncertainty and legitimacy pressures (DiMaggio & Powell, 1983). The

dominant logic of organizing is to be reﬂected in organizations’ structures, culture,

and routines that broadly constitute new organizational capabilities (Winter, 2003).

These organizational capabilities are institutionalized over time and become the

organizational imprint, which later shapes organizational responses to external

pressures. Less dominant logics may also affect the organizations, but not as

profoundly and persistently as the dominant logic.

The second component is the institutional position an organization possessed

in the founding environment. Existing institutional literature has noted that

organizations are not equally distributed in an institutional ﬁeld: some

organizations are located at the center, while others at the periphery (Shils,

1975). Different institutional positions in a ﬁeld could affect organizations’

access to resources and their behaviors (Battilana, Leca, & Boxembaum, 2009).

Organizations at the center of a ﬁeld are secured in their social acceptance,

so they can deviate from conventional behaviors (Greenwood & Suddaby, 2006;

Greenwood, Suddaby, & Hinings, 2002). Organizations at the periphery of the

ﬁeld may also initiate changes to seek a more favorable social reception from other

available audiences (Garud, Jain, & Kumaraswamy, 2002; Haveman & Rao, 1997;

Leblebici, Salancik, King, & Copay, 1991). The notion of institutional positions

is also applicable to the founding environment because some organizations were

founded at the center and others on the periphery. Organizations founded at

different institutional positions face different contextual features and would develop

characteristics that reﬂect prominent features of their own positions. In other

words, different institutional positions may leave organizations different imprints

that would affect their responses to multiple institutional pressures.

The Chinese state-owned ﬁrms listed in the HKSE market, which were founded

in different periods and by different government layers, provides an ideal context

to examine how ﬁrms’ imprints affect their board composition pressured by two

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Organizational Imprinting and Response to Institutional Complexity 351

conﬂicting institutional logics: the socialist and market logics. The next section

further elaborates the empirical setting.

EMPIRICAL SETTING

Boards of State-owned Firms

The empirical setting I explore is the publicly traded Chinese state-owned ﬁrms

listed in the HKSE market. In the late 1970s, China launched the socioeconomic

transition from a socialist planned economy to a market-oriented economy. The

market transition accelerated after 1992 as the former paramount leader Deng

Xiaoping demonstrated the determination to end the ideological debate and

reassure the market-oriented reform during his southern tour in the spring 1992

(Zhao, 1993). State-owned ﬁrms, the pillar of the socialist economy, underwent

a series of ownership reforms as the transition unfolded. State-owned ﬁrms

founded in the socialist era were transformed into joint-stock corporations, while

newly founded state-owned ﬁrms were organized around the Western model

of corporations (McFarlan, Xu, & Manty, 2009). Besides, ﬁrms operating in

related industries were consolidated into business groups, and governments used

parent ﬁrms to control the conglomerates (Keister, 2000). The central and local

governments owned and managed different sets of business groups through

State-Owned Assets Supervision and Administration Commissions (SASACs) – a

hierarchical government agency created in 2003 to oversee state assets on behalf

of the government at different layers – and such classiﬁcation of business groups

followed the governmental administrative rank of the parent ﬁrms at founding

(Deng, Morck, Wu, & Yeung, 2011). Most often the strongest performing assets

of a business group were reconsolidated into an existing or a new ﬁrm ready for

going public (Lin & Milhaupt, 2013). Since the mid-1990s, there were a growing

number of state-owned ﬁrms going public in overseas stock exchanges. The HKSE

market was the most favorable one due to its geographic and cultural proximity.

In order to meet listing requirements of the HKSE market, state-owned ﬁrms

adopted internationally recognized corporate governance structures and built

boards by imitating both the US and German board models. They set up

shareholders’ meetings, the board of directors, and the supervisory board. The

board of directors was responsible for making key decisions on ﬁrm operation

and have the authority to appoint or dismiss managers. In addition to the state-

appointed directors, the board allowed directors who represented the interests

of foreign and private investors to participate in ﬁrm management for the sake

of board independence required by the stock market. The supervisory board,

designed to oversee the board and management, was often considered more

cosmetic since they had basically no power to question board decisions and acts

and became the subordinate of board directors and senior executives (McFarlan et

al., 2009). Figure 1 illustrates the board structure of listed state-owned ﬁrms.

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352 Y. Wei

SASAC

General Shareholder’s Meeting

Board of Directors Supervisory Board

Special Committees

Management

Figure 1. Board structure of Chinese listed SOEs

Board members of HKSE-listed state-owned ﬁrms are ofﬁcially categorized

into three groups: executive directors (EDs), non-executive directors (NEDs),

and independent non-executive directors (INEDs) (Clarke, 2006). EDs are

management directors directly appointed by governments or the SASACs and

serve as the agent of government owners. They are usually party members and

implicitly enjoy the equivalent administrative position in governments. Unlike

their counterparts in US corporations who defend shareholders’ interests for

maximizing returns on investment, EDs instead work closely with management

to defend state interests, which are not limited to ﬁnancial ones (Wong, Opper,

&Hu,2004). NEDs are non-management directors who have professional

relationships with the focal state-owned ﬁrm. NEDs include both individual and

institutional investors (called ‘legal persons’ by Chinese terminology). INEDs are

non-management directors having no professional relationship with the focal state-

owned ﬁrm.

Studies on corporate governance of Chinese ﬁrms followed agency theory and

applied the US deﬁnition of outside directors into the Chinese context (Child,

1994;Peng,2004). For example, Peng (2004) examined the effects of outside

directors on publicly traded ﬁrm performance in China and the factors that

affected the appointment of outside directors. He deﬁned outside directors as

directors representing institutional and individual interests, and insiders as those

currently employed by the focal ﬁrm and its subsidiaries. For Chinese state-owned

ﬁrms, however, the distinction between insiders and outsiders is different from the

US ﬁrms. Some NEDs of state-owned ﬁrms, which are considered as outsiders

in US ﬁrms, come from other state-owned ﬁrms of the same business group.

Moreover, some INEDs are not truly independent since they are former leaders

of the same state-owned ﬁrms or former government ofﬁcials who later serve

in government-afﬁliated entities (e.g., industrial associations) with interests in

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Organizational Imprinting and Response to Institutional Complexity 353

the state-owned ﬁrms. These people are an integral part of the state running

the ﬁrms and hardly able to evaluate management impartially. In this study, I

deﬁne insiders in state-owned ﬁrms as state directors who are directly appointed

by the state and those from business-related state-owned ﬁrms, government

agencies, and government-afﬁliated entities. Outsiders are non-state directors who

are not afﬁliated with any state-owned ﬁrm, government agency or government-

afﬁliated entity. They represent non-state shareholders who have less similarity

with the state shareholders so that they can more effectively monitor the state-

owned ﬁrms to defend minority shareholders’ interests and are much more

valued by ﬁrms’ stakeholders. Board independence in state-owned ﬁrms is more

precisely captured by the weight of non-state directors on the board. Such

categorization also reﬂects the major conﬂict between the state as the controlling

shareholder and non-state investors as minority shareholders in state-owned

ﬁrms.

For publicly traded state-owned ﬁrms, their board independence is pressured

by the HKSE market that epitomizes the market logic and the state owners

that epitomize the socialist logic. In the next part, I analyze and compare the

differences between the socialist and market logics that create the institutional

complexity.

Socialist versus Market Logics

Under socialist economic institutions, the state controlled most critical resources

and allocated them to state-owned ﬁrms based on central planning. State-owned

ﬁrms could not determine what product they should make, how many they

should output, and what price they should set, but had to comply with the

state directives. The state procured the output of state-owned ﬁrms for further

distribution (Kriauciunas & Kale, 2006).Sincethestatewasthesoleownerofthese

ﬁrms, leadership and personnel were ultimately determined by the state to execute

the state will. Although there was no board of directors in the state-owned ﬁrms

founded in the socialist era, its counterpart governance body was constituted by

nearly all government ofﬁcials and party members.

After the market transition, the state still remains the controlling shareholder

(Fligstein & Zhang, 2009). State-owned ﬁrms are considered extended arms of the

state in the market in order to act in the best interests of the state. The state

formally exercises its rights as the controlling shareholder to appoint directors

who build their entire careers in the socialist state bureaucracy, so that the state

can exert inﬂuence over nearly all decisions of state-owned ﬁrms to achieve goals

beyond ﬁnancial performance (McFarlan et al., 2009). Non-state directors who

focus more narrowly on ﬁnancial goals are thus inconsistent with the socialist logic,

and state-owned ﬁrms are inclined to minimize the number of non-state directors.

In short, the socialist logic prescribes internal structure and practices that reﬂect

the persistent commitment of state-owned ﬁrms to the socialist system.

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354 Y. Wei

Table 1. Socialist versus market logics

Socialist Logic Market Logic

Resource allocation Government planning of

production and pricing

Market determines production

and prices

Means of production Collective ownership of

means of production

Private ownership of means of

production

Firm Mainly state-owned ﬁrms Mainly private ﬁrms

Leadership All top executives directly

appointed by government

Board of directors elected by

general shareholder meeting

Board composition State director dominance More non-state directors and

independence

In contrast, market institutions are characterized by private ownership of means

of production. Firms have autonomy and control over their own production and

pricing. In the US, ﬁrms are characterized by relatively dispersed ownership and

top executives could take control of ﬁrms since a controlling shareholder rarely

exists (Hall & Soskice, 2001). This separation of ownership and control between

shareholders and management leads to the principle-agent problem where top

executives may not act in the best interests of shareholders. Agency theory

suggests governance mechanisms must be established to mitigate the principal-

agent problem, and the board of directors, among others, is considered essential

to monitor self-interested managers’ actions and maximize shareholder value

(Fama & Jensen, 1983). In particular, a more independent board that consists

primarily of outside directors is believed to be better able to monitor management

actions because outside directors tend to be more objective in the evaluation

of management performance given their arm’s length relationships to ﬁrms’ top

executives (Dalton, Daily, Ellstrand, & Johnson, 1998).

A plethora of corporate governance research has shown that the market logic

with respect to the agency theory has risen to its dominance and ﬁrms’ stakeholders

are heavily inﬂuenced by the prevailing market logic to evaluate ﬁrms by placing

greater importance on board independence (Davis, 2009; Westphal & Graebner,

2010). This can be seen in the listing requirements of the HKSE market that

underscore the increasing weight of outside directors on the board and the

media’s more favorable coverage of ﬁrms and their chief executive ofﬁcers (CEOs),

following increased board independence (Bednar, 2012). State-owned ﬁrms are

also pressured to build more independent boards to meet listing requirements and

stakeholders’ expectations. Those founded in the market-oriented environment

would be more susceptible to the inﬂuence of the prevailing market logic.

Tabl e 1 summarizes the differences between the socialist and the market logic.

For HKSE listed state-owned ﬁrms, the institutional complexity was created in

a way that the market logic, as the pushing factor, demanded more non-state

directors, while the socialist logic, as the pulling factor, mandated fewer non-state

directors.

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Organizational Imprinting and Response to Institutional Complexity 355

HYPOTHESES

Imprinting from the Logics of Organizing and Board Composition

Recent imprinting research has paid attention to the socioeconomic transition

from socialist to market-oriented economies throughout the world in the past

few decades. These studies showed that organizations founded in the socialist

economic system were stamped with a strong socialist imprint, rendering

them difﬁcult to adapt to market environments during the transition. Studies

on Central and Eastern Europe, for instance, demonstrated that ﬁrm-speciﬁc

capabilities and knowledge sets developed in the Communist system were era-

speciﬁc and persistent so that these socialist imprints adversely impacted ﬁrms’

operating knowledge and competitive aspirations in market-oriented environments

(Kriauciunas & Kale, 2006; Shinkle & Kriauciunas, 2012). Research on China has

found that older ﬁrms were less likely to adopt new practices, since they had greater

socialist imprints that were incompatible with market environments (Marquis &

Qian, 2014). The key difference between the socialist and transition period is that

they are characterized by different dominant logics of organizing that founders rely

on. Hence, state-owned ﬁrms founded in different periods would be stamped with

a socialist imprint to various degrees, which shaped ﬁrms’ subsequent behaviors.

Chinese state-owned ﬁrms founded after 1992 faced declining socialist

institutions as the market-oriented reform accelerated. Organizational structures

and practices consistent with the socialist logic were found to be ill-suited to the

market-oriented environment and state-owned ﬁrms had to develop structures and

practices prescribed by the ascending market logic (e.g., more dispersed ownership

structure and representative governance body) to establish legitimacy and look for

a ﬁt with the market-oriented environment (Meyer & Rowan, 1977;Peng,2004).

Listing in the HKSE market enforced the market logic such that state-owned ﬁrms

founded in the market logic dominant period were more oriented by the demands

and perception of various domestic and international shareholders to have more

non-state directors on their board for legitimacy purposes. Domestically, these

ﬁrms were more visible and scrutinized by the public and media when they were

created more recently. As an important part of the people’s wealth, they were

deemed to perform well for the people by strengthening internal control, including

the functioning of the boards. Moreover, they were listed to access the global

market, and international investors had rigorous demands for more outsiders to

increase transparency and board effectiveness and protect their interests. Poorly

monitored ﬁrms would expose themselves to the criticism of the domestic public

for squandering people’s wealth and aggravate international investors’ concerns

about their investment. Even under the pressure of the socialist state to keep the

dominance of state directors on the board, the ﬁrms were inclined to have more

non-state directors who could send the market the signal that these ﬁrms may have

better internal control mechanisms and minority shareholders’ interests could be

protected.

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356 Y. Wei

On the other hand, state-owned ﬁrms that were founded before 1992 possessed

greater socialist imprint since their founding period was dominated by the socialist

logic. Such ﬁrms were organized to rely on the state planning for input and

output and instituted the governance body ﬁlled with directors who were civil

servants accountable to the state and responsible for achieving the goals of the state

(Newman, 2005). The decision-making process was controlled in the boardroom

and the results went in favor of government owners. When listed in the HKSE

market, these ﬁrms had to adjust board composition to meet listing requirements,

but were inclined to preserve the deeply entrenched governance structure by

keeping as many state directors on the board to ensure continuing reliance on

the state. Given their long-standing role in the socialist system, these ﬁrms were

less concerned with the legitimacy issue and less oriented by other shareholders’

demand for more outside directors who would pose a challenge to the ﬁrms’

governance structure and vested interests. Thus, state-owned ﬁrms founded in the

socialist logic dominant period were disposed not to increase the number of non-

state directors so long as the board composition could meet the listing requirements

and the expectation of government owners. In other words, the socialist imprint of

these ﬁrms persisted and rendered the partial and gradual increase of non-state

directors. Thus, I hypothesize:

Hypothesis 1: State-owned ﬁrms founded in the market logic dominant period will have more

non-state directors on the board than state-owned ﬁrms founded in the socialist logic dominant

period.

Imprinting from Institutional Positions and Board Composition

Studies on state-owned ﬁrms usually consider the state as a monolithic entity

and focus on performance and behavior differences between state-owned

and non-state-owned ﬁrms (Marquis & Qian, 2014; Nee, Opper, & Wong,

2007; Ralston, Terpstra-Tong, Terpstra, Wang, & Egri, 2006). However, the

state is a hierarchically institutional ﬁeld comprising a multi-layer government

administration (Weber, 1978). A typical nation-state consists of the central or

federal government and multi-layer local governments acting within the power

delegated by legislation or directives of higher levels of government. The central

and local governments may own and manage different sets of ﬁrms, and this

is particularly true for emerging economies, which are characterized by the

dominance of the state sector (Li, Cui, & Lu, 2014). In India, for example, there

were less than 200 ﬁrms owned by the central government while local governments

managed about 800 to 1,000 ﬁrms by 2005 (Mishra, 2009). As of 2011, the

Chinese central government agencies owned and managed 121 central state-

owned ﬁrms and business groups, and the rest of the state-owned ﬁrms were

owned and managed by a total of 54 provincial and prefecture city government

agencies.

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Organizational Imprinting and Response to Institutional Complexity 357

The Chinese state-owned ﬁrms listed in the HKSE market include both the

ﬁrms founded by central government agencies and the ﬁrms founded by local

government agencies. They were later managed by the SASACs that represented

government owners at the central and local level, respectively. In the socialist

system, state-owned ﬁrms founded by central government agencies were born at

the center while others founded by local government agencies were born on the

periphery. Their different positions in the founding environment would leave them

different imprints in that the central government and local governments may put

different goals and governance structures in place for their own ﬁrms at founding.

Subsequent structures and personnel would bear a strong resemblance to their

founding models (Burton & Beckman, 2007).

State-owned ﬁrms founded by the central government agencies were positioned

to serve as policy instruments to support the macroeconomic and political goals

of the central government (e.g., secure strategic assets and resources for national

security and competitiveness) (Li et al., 2014). When founded, the ﬁrms were

tightly controlled by the central government through the board dominated by

state directors to mirror and accomplish the goals. The central positioning shaped

the blueprint for state-owned ﬁrms founded by central government agencies,

such that the ﬁrms continued to pursue those strategic goals rather than purely

commercial interests when listed in the HKSE market. Their boards, dominated

by state directors, were maintained and reinforced over time to guarantee that the

strategic purposes were fulﬁlled under pressure from the rest of the stakeholders

(Beckman & Burton, 2008). Non-state directors that represented the interests of

private and global investors usually focused narrowly on maximizing investment

return, and would have divergent views on ﬁrms’ goals and decisions made by the

state directors. Having more non-state directors would disrupt decision-making

routines and not necessarily help these ﬁrms achieve the strategic goals. In this

regard, the central position left state-owned ﬁrms founded by central government

agencies a stronger socialist imprint, which rendered them less likely to pursue

board independence.

In contrast, state-owned ﬁrms founded by local government agencies were

created on the periphery of the socialist system and less tightly controlled by

the socialist state. Local governments did not share the broader national goals

with the central government and their ﬁrms were not obligated to pursue similar

strategic goals as the central state-owned ﬁrms had at founding. Instead, these

ﬁrms were positioned to generate rent and support budgets for local governments

(Li et al., 2014). Such positioning of local state-owned ﬁrms was heightened as

the administrative and ﬁscal decentralization in the transition period entailed

local governments to be more responsible for their own budget and ﬁscal

health (Wang & Hu, 2001). Being less privileged by the socialist system, state-

owned ﬁrms founded by local government agencies had to seek for a more

favorable social perception in the market-oriented environment to gain more

ﬁnancial support, including going public and raising capital in the HKSE market.

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358 Y. Wei

Having more non-state directors helped alleviate investor concerns about ﬁrms’

corporate governance and accomplish the ﬁnancial goals of local governments.

In addition, adding more non-state directors provided these ﬁrms with necessary

knowledge, skills, and competences to evaluate management and assess business

strategies and operations, and eventually strengthen their performances and

competitiveness in the global market (Hillman, Cannella, & Paetzold, 2000;

Hillman & Dalziel, 2003). Therefore, the peripheral position left a weaker socialist

imprint on the state-owned ﬁrms founded by local government agencies and

these ﬁrms were more responsive to the market pressure to have more non-state

directors than the ﬁrms founded by the central government agencies. I therefore

hypothesize:

Hypothesis 2: State-owned ﬁrms founded by the central government agencies will have fewer

non-state directors on the board than state-owned ﬁrms founded by local government agencies.

METHOD

Sample and Data Collection

The sample ﬁrms of this study are all P. R. China-registered state-owned ﬁrms

listed in the HKSE main board between 2005 and 2010 and a total of 107 ﬁrms

are included. Choosing publicly listed state-owned ﬁrms at the HKSE market is

mainly because the HKSE market is commonly considered as the most efﬁcient

and transparent capital market worldwide. It has more stringent and exhaustive

corporate governance and disclosure requirements for listed ﬁrms compared to

Mainland China’s capital markets. In this regard, the HKSE market can better

represent a true market environment. Besides, the data from the HKSE market is

believed to be more reliable than the data obtained from domestic capital markets

in China because it serves investors across the globe and emphasizes information

accuracy.

I chose this timeframe between 2005 and 2010 because since March 31st

of 2004, HKSE revised the Main Board Listing Rules and required all listed

ﬁrms to increase the minimum number of independent directors to three,

and recommended ﬁrms to increase the proportion of outside directors (HKEx

Mainboard Listing Rules,2005). Such revision was a mandate and sent a signal

to all listed ﬁrms about appropriate governance practices. Thus, choosing

2005 as the starting point, we can better observe the variation in state-owned

ﬁrms’ board composition when responding to both the market and socialist

logics.

My ﬁrst data source is HKExnews, which is the ofﬁcial dataset of Hong Kong

Exchange and Clearing Limited solely for the issuer information. This dataset

provides sample ﬁrms’ annual reports, which contain the information of directors,

boards, and supervisory boards. I manually collected each director’s biography

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Organizational Imprinting and Response to Institutional Complexity 359

and coded their government afﬁliation. The size and change of boards and

supervisory boards were also obtained from ﬁrms’ annual reports. My second

data source includes public ofﬁcial records of the sample ﬁrms as well as the

SASACs (e.g., ofﬁcial websites), where I collected each sample ﬁrm’s founding

dates and identiﬁed whether the ﬁrm was founded and subsequently managed

by central government or local government agencies. Additional information

of ﬁrms’ founding history and directors’ background has been obtained from

media coverage to complement and cross validate the coding of founding

owners and directors’ government afﬁliations. The last one is the Chinese

Overseas Listed Company Research Dataset, a sub-dataset of China Stock Market

and Accounting Research Dataset (CSMAR). It is compiled by Guo Tai An

(GTA), an economics and ﬁnance research institute in China. The dataset

covers company proﬁles, share structures, income statements, balance sheets, and

trading volume for all Chinese ﬁrms listed in overseas stock exchanges including

the HKSE market. I mainly used this dataset to obtain the data of control

variables.

Vari abl e s

Dependent variable. The dependent variable is the board composition of a focal ﬁrm in a

given year. It is a count variable measured as the total number of non-state directors

in a sample ﬁrm’s board. As discussed earlier, non-state directors, rather than the

independent directors in US ﬁrms, are the outsiders in state-owned ﬁrms. I deﬁne

state directors as directors who are afﬁliated with state-owned ﬁrms, government

and legislative agencies, or government-afﬁliated entities. The can be EDs, NEDS,

or INEDs in the focal state-owned ﬁrm. Thus, non-state directors are directors

having no such afﬁliation.

Using the number of non-state directors in the board, instead of the percent,

is because the number can better capture the structural variation of the board

and the effect of the organizational imprint. Two state-owned ﬁrms may have the

same percent of non-state directors, but could differ in the number. More non-state

directors are able to be involved in a wide range of ﬁrm management and have

more power to inﬂuence the board’s decisions in line with the market demands;

and this is more likely to be allowed in ﬁrms that had less socialist imprint in the

ﬁrst place. This variation in the board structure and imprint effect are reﬂected by

the number of non-state directors, however, cannot be seen from the same percent.

To further corroborate the imprint argument, the percent of non-state directors is

included in robustness checks.

Independent variables. To test Hypothesis 1, I treat founding period as a dummy variable

which is equal to 1 if the focal ﬁrm was founded after 1992 when the market

logic became dominant, and is 0 if the focal ﬁrm was founded in and before

1992 when the socialist logic dominated. The cutting year is 1992 because the

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360 Y. Wei

former paramount leader Deng Xiaoping made the southern tour of China in

1992 to galvanize the market-oriented reform and the economy rapidly embraced

the market logic afterwards. Right after Deng’s southern tour, the Company Law

was promulgated in 1993 for the purpose of corporatization of traditional state-

owned ﬁrms and establishment of Western-like ownership structure and corporate

governance practices. Following was the large-scale reorganization of the state-

owned ﬁrms and the issuance of their initial public offerings (IPOs) in the HKSE

and other overseas capital markets.

To test Hypothesis 2, position is measured in two ways. To be consistent with prior

research that classiﬁed state-owned ﬁrms into a few categories (Guthrie, 1997), I

code position with three dummy categories. Those founded by central government

agencies or the business groups wholly owned by the central SASAC are classiﬁed

as central government ownership, those founded by provincial government agencies or

the business groups wholly owned by the provincial SASACs as provincial government

ownership, and those founded by the government agencies at or below prefecture

city level or the business groups wholly owned by the prefecture city SASACs as city

government ownership. I include central government ownership and city government

ownership in the regression analyses, leaving provincial government ownership

as the omitted category. Second-level subsidiaries of the business groups wholly

owned by the central SASAC are classiﬁed as provincial government ownership,

because such subsidiaries were not directly controlled by the central government

at founding and usually started operation locally. Alternatively, I recode provincial

and city government ownership into a new category, local government ownership and

code position with two dummy categories. It is equal to 1 if the focal ﬁrm is classiﬁed

as central government ownership, and 0 if it is classiﬁed as local government

ownership.

It is noted that some state-owned ﬁrms underwent a series of ownership

restructuring during the transition period and their government owners may

change accordingly. To identify the extent of ownership change in the sample,

I also collected sample ﬁrms’ government owner data between 2005 and 2010

and compared it with ﬁrms’ government owners at founding. Three sample

ﬁrms experienced the change of government ownership since their founding

and government owners of the rest remain unchanged. All three ﬁrms were

devolved from central government ownership into local government ownership,

and this allows regression analysis to provide a more conservative test. In this

vein, ﬁrms’ government owners between 2005 and 2010 are not included in the

analyses.

Control variables. A number of control variables are included to account for

alternative explanations. Firm age is measured by the number of years since the

founding of a state-owned ﬁrm. It is used to capture ﬁrms’ socialist imprint in prior

studies (Marquis & Qian, 2014). In this study, some state-owned ﬁrms founded in

the socialist logic dominant period were restructured in the market logic dominant

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Organizational Imprinting and Response to Institutional Complexity 361

period. Their governance structures with socialist imprint were disrupted as they

became aged. Firm age may not precisely capture the persistent effect of ﬁrms’

socialist imprint. Board size, measured as the total number of directors sitting on a

board in a given year, is considered to affect the monitoring capability of the board.

Larger boards may endanger participation and cohesiveness, and are less likely

to be independent (Firstenberg & Malkiel, 1994). I also controlled for supervisory

board size, measured as the count of the number of supervisory directors in a given

year, since the supervisory board, though more often symbolic, is designed to

oversee the boards of directors and the management in the two-tier board system

and may affect the board composition. CEO duality is a dummy variable, equal

to 1 if the CEO is not the chairman of the board of directors and 0 otherwise.

A CEO holding both positions is seen to have greater formal authority, often

hampering board independence (Cannella & Lubatkin, 1993). Firm performance

should inﬂuence the likelihood of appointing more outside directors since high-

performing ﬁrms tend not to change their current board composition. Performance

is measured as ROA – return on assets – which represents the efﬁciency of ﬁrm

operation. Firm size, measured as the logarithm of annual sales, is controlled in

that larger ﬁrms are less likely to change their existing governance structures.

Industry is controlled using four-digit industry code of the HKSE classiﬁcation,

and I include 19 industry dummies representing the 20 industry categories.

To control for a potential time effect, I include year dummy variables in the

analyses.

I also controlled for two context-speciﬁc variables: controlling shares and H shares.

HKSE-listed Chinese state-owned ﬁrms offer shares classiﬁed as non-tradable state

shares, non-tradable legal person shares, and tradable public shares (Haveman &

Wang, 2013). State shares are held by ﬁrms’ government owners. The SASACs

under the jurisdiction of government owners hold state institutional shares, which

are categorized into legal person shares, to control their ﬁrms.[1]Tradable

public shares, also known as as H-shares[2], are open to foreign individual and

institutional investors. This system of split ownership (partly state, partly non-

state) enabled state-owned ﬁrms to raise capital while maintaining state control

(Fligstein & Zhang, 2009). Controlling shares are measured by the percentage of non-

tradable state and state institutional shares in total shares. It is included because

contemporary state control may affect board composition and the conversion

of non-tradable shares to tradable shares in the 2000s may result in reduced

controlling shares. H shares, measured by the percentage of publicly traded number

of H-shares in the total shares issued by the focal ﬁrm, is controlled for temporary

market volatility.

Analyses

The unit of analysis of this study is the state-owned ﬁrm, and the unit of observation

is the ﬁrm-year. I used generalized estimating equations (GEE) to conduct the

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362 Y. Wei

regression analysis in the reported models, given that the panel data has repeated

measurements for each sample ﬁrm from 2005 to 2010. GEE models are well

suited for the analysis of longitudinal data because this estimation technique can

increase the efﬁciency and consistency of estimators while controlling for potential

autocorrelation and heteroskedasticity in the data, and allows the dependent

variable to take on a wide range of forms (Liang & Zeger, 1986;Zorn,2001).

For GEE models, a distribution of the dependent variable, a link function, and a

correlation structure need to be correctly speciﬁed. Since the models predicted the

count of the number of non-state directors, I speciﬁed a log link function and a

Poisson distribution for the dependent variable. All models presented below used

an independent correlation structure.

RESULTS

Tabl e 2 displays descriptive statistics and a correlation matrix for all variables.

Tabl e 3 presents the results of GEE analyses predicting the number of non-state

directors on the boards of listed Chinese state-owned ﬁrms. Model 1 in Tabl e 3

includes all control variables as the baseline model.

Hypothesis 1 predicts that state-owned ﬁrms founded in the market logic

dominant period tend to have more non-state directors on the board. Model 2

includes ﬁrms’ founding period to test Hypothesis 1. State-owned ﬁrms founded

after 1992 has a signiﬁcantly positive coefﬁcient (p<0.01). The expected number

of non-state directors will increase by a factor of 1.817 with a 95% conﬁdence

interval (CI) of (1.546, 2.136) when state-owned ﬁrms are founded after 1992. It

suggests that state-owned ﬁrms founded after 1992 follow the market logic and tend

to have more non-state directors than those ﬁrms founded in and before 1992. The

results provide strong support to Hypothesis 1.

Hypothesis 2 predicts that state-owned ﬁrms founded by central government

agencies tend to have fewer non-state directors on the board than state-owned

ﬁrms founded by local government agencies. Model 3 includes the position to

test Hypothesis 2. It is operationalized by the three dummy categories with

city government ownership as the omitted category. The coefﬁcient of city

government ownership is not signiﬁcant, but the central government ownership

has a signiﬁcantly negative coefﬁcient (p<0.01). The results suggest that the

number of non-state directors of state-owned ﬁrms founded by city government

agencies are not signiﬁcantly different from that of state-owned ﬁrms founded

by provincial government agencies, but state-owned ﬁrms founded by central

government agencies tend to have fewer non-state directors than state-owned

ﬁrms founded by provincial government agencies. The expected number of non-

state directors will decrease by a factor of 0.647 with a 95% CI of (0.547, 0.766)

when state-owned ﬁrms are founded by central government agencies. Hypothesis

2 is corroborated. The results are the same in Model 4, when both independent

variables are included.

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Organizational Imprinting and Response to Institutional Complexity 363

Table 2. Descriptive statistics and Pearson correlations

MeanS.D.12345678910111213

1. Non-state directors 2.58 1.41 1.00

2. Percent of non-state directors 0.23 0.12 0.89 1.00

3. Founding period 0.33 0.47 0.62 0.58 1.00

4. Position (3 categories) 3.40 0.57 −0.45 −0.51 −0.39 1.00

5. Position (2 categories) 0.45 0.50 −0.45 −0.51 −0.33 0.94 1.00

6. Firm age 29.59 18.72 −0.22 −0.19 −0.50 0.28 0.25 1.00

7. Board size 11.18 2.45 0.28 −0.13 0.12 0.07 0.07 −0.08 1.00

8. Supervisory board size 4.86 1.83 0.09 −0.13 −0.01 0.06 0.03 0.05 0.52 1.00

9. H shares 32.87 10.70 0.20 0.16 0.27 −0.11 −0.12 0.02 0.06 0.09 1.00

10. Controlling shares 50.98 14.53 −0.23 −0.20 −0.12 0.43 0.39 0.08 −0.09 0.003 −0.16 1.00

11. Firm size 10.12 0.78 −0.10 −0.25 −0.05 0.49 0.53 0.07 0.27 0.20 −0.26 0.30 1.00

12. CEO duality 0.89 0.32 0.03 0.07 0.02 −0.01 −0.06 0.05 −0.04 0.03 0.12 0.09 −0.18 1.00

13. ROA 0.11 1.41 −0.02 −0.01 −0.03 −0.03 −0.04 −0.02 −0.04 0.02 −0.04 −0.001 −0.05 0.01 1.00

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364 Y. Wei

Table 3. GEE results of predicting the number of non-state directors

Variable 123456

Founding

period

(market logic

dominant

period=1)

0.597∗∗∗ 0.562∗∗∗ 0.558∗∗∗

(0.000) (0.000) (0.000)

City govt

ownership

(vs. provincial

govt

ownership)

0.193 −0.0332

(0.191) (0.825)

Central govt

ownership

(vs. provincial

govt

ownership)

−0.435∗∗∗ −0.384∗∗∗

(0.000) (0.000)

Central govt

ownership

(vs. local govt

ownership)

−0.429∗∗∗ −0.385∗∗∗

(0.000) (0.000)

Controls

Firm age −0.00398∗∗ 0.00482∗∗ −0.00118 0.00648∗∗∗ −0.00154 0.00648∗∗∗

(0.020) (0.018) (0.505) (0.002) (0.379) (0.002)

Board size 0.0771∗∗∗ 0.0551∗∗∗ 0.0755∗∗∗ 0.0571∗∗∗ 0.0770∗∗∗ 0.0570∗∗∗

(0.000) (0.001) (0.000) (0.001) (0.000) (0.001)

Supervisory

board size

−0.0524∗∗∗ −0.0203 −0.0610∗∗∗ −0.0327 −0.0621∗∗∗ −0.0326

(0.007) (0.303) (0.002) (0.102) (0.002) (0.102)

ROA 0.0114 0.00628 0.00855 0.00422 0.00876 0.00420

(0.613) (0.780) (0.707) (0.852) (0.699) (0.852)

CEO duality −0.0382 −0.0442 −0.00323 −0.0146 −0.0114 −0.0126

(0.696) (0.651) (0.974) (0.883) (0.908) (0.898)

H shares 0.00186 −0.00418 0.00361 −0.00263 0.00336 −0.00255

(0.476) (0.121) (0.163) (0.337) (0.196) (0.347)

Controlling

−0.000702 −0.00222 0.00284 0.000508 0.00241 0.000608

(0.774) (0.372) (0.264) (0.845) (0.339) (0.812)

Firm size −0.139∗∗ −0.161∗∗∗ 0.0147 −0.0357 0.00495 −0.0339

(0.012) (0.003) (0.815) (0.570) (0.937) (0.587)

Year effects Yes Yes Yes Yes Yes Yes

Industry effects Yes Yes Yes Yes Yes Yes

Constant 1.226∗∗ 1.565∗∗∗ −0.354 0.309 −0.214 0.281

(0.043) (0.009) (0.608) (0.655) (0.753) (0.679)

Observations 539 539 539 539 539 539

Number of

ﬁrms

107 107 107 107 107 107

Wal d χ2169.1 222.2 192.7 235.6 191.0 235.5

Notes: p-values in parentheses.

∗∗∗ p<0.01; ∗∗ p<0.05; ∗p<0.1.

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Organizational Imprinting and Response to Institutional Complexity 365

Model 5 uses an alternative measure of position with two dummy categories to

test Hypothesis 2. Central government ownership still has a signiﬁcantly negative

coefﬁcient (p<0.01). The expected number of non-state directors will decrease

by a factor of 0.651 with a 95% CI of (0.551, 0.770) when state-owned ﬁrms

are founded by central government agencies. It indicates that state-owned ﬁrms

founded at the center of the economy have stronger socialist imprint and tend to

have fewer non-state directors than those founded at the periphery. The results also

lend strong support to Hypothesis 2. The results are the same in Model 6, when

both independent variables are included.

It is noted that ﬁrm age has a positive effect on the number of non-state directors

in Model 2, 4, and 6. The results conﬁrm the confounding effect of using years to

capture the persistent effect of socialist imprint, because ﬁrm age covers the market

logic dominant period when some ﬁrms’ governance structures were disrupted.

Besides, the size of a supervisory board has a signiﬁcant negative effect on the

number of non-state directors in three models. It is shown that larger supervisory

boards tend to perform their duties less effectively and allow fewer non-state

directors to sit on boards. The result is consistent with the ﬁndings of the extant

literature that supervisory boards of state-owned ﬁrms are always considered as

symbolic. The negative effect of ﬁrm size also conﬁrms that larger ﬁrms are less

likely to adopt new board structure. In addition, CEO duality has no signiﬁcant

effect on the number of non-state directors since most ﬁrms in the sample have

separate chairman and CEO. ROA and the percent of controlling shares and H

shares also do not have signiﬁcant effects, and a potential explanation is that board

independence may be partially symbolic.

Robustness Checks

I conducted several robustness checks following the analyses. To reduce concerns

about multicollinearity, I obtained variance inﬂation factors (VIFs) for each model

in Tabl e 3 . These VIFs were all less than 10 and I am fairly conﬁdent that

multicollinearity does not threaten the validity of my ﬁndings. Regarding concerns

that compound symmetry might be present in the data, I re-tested the hypotheses

specifying an exchangeable error correlation structure in the GEE models, and the

results did not change. Besides, to corroborate the imprinting effect, I re-tested the

hypotheses using the percent of non-state directors on the board as the alternative

dependent variable. For this continuous variable, I speciﬁed an identity link func-

tion and a Gaussian distribution for GEE modeling. Ta b le 4 presents the results.

Still, state-owned ﬁrms founded after 1992 have a signiﬁcantly positive coefﬁcient

and those classiﬁed as central government ownership have a signiﬁcantly negative

coefﬁcient. It suggests state-owned ﬁrms founded in the market logic dominant

period tend to have a higher percent of non-state directors on the board and those

founded by the central government agencies tend to have lower percent of non-

state-directors on the board. The results also corroborate the imprint argument.

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366 Y. Wei

Table 4. GEE results of predicting the percent of non-state directors

Vari abl e 1 2 3 4 5 6

Founding period

(market logic

dominant

period=1)

0.146∗∗∗ 0.137∗∗∗ 0.135∗∗∗

(0.000) (0.000) (0.000)

City govt

ownership (vs.

provincial

govt

ownership)

0.0453∗−0.0185

(0.061) (0.402)

Central govt

ownership (vs.

provincial

govt

ownership)

−0.0898∗∗∗ −0.0723∗∗∗

(0.000) (0.000)

Central govt

ownership (vs.

local govt

ownership)

−0.0895∗∗∗ −0.0727∗∗∗

(0.000) (0.000)

Controls

Firm age −0.00103∗∗∗ 0.00103∗∗∗ −0.000422∗0.00132∗∗∗ −0.000500∗∗ 0.00132∗∗∗

(0.000) (0.000) (0.095) (0.000) (0.046) (0.000)

Board size −0.00168 −0.00706∗∗∗ −0.00231 −0.00683∗∗∗ −0.00195 −0.00689∗∗∗

(0.498) (0.001) (0.324) (0.001) (0.406) (0.001)

Supervisory

board size

−0.0101∗∗∗ −0.00321 −0.0113∗∗∗ −0.00479∗−0.0115∗∗∗ −0.00483∗

(0.001) (0.222) (0.000) (0.057) (0.000) (0.055)

ROA 0.00180 0.000708 0.00108 0.000244 0.00112 0.000241

(0.551) (0.789) (0.705) (0.923) (0.694) (0.924)

CEO duality 0.00444 0.00393 0.00776 0.00516 0.00654 0.00567

(0.756) (0.754) (0.566) (0.667) (0.629) (0.636)

H shares −7.82e-05 −0.00126∗∗∗ 0.000454 −0.000849∗∗ 0.000385 −0.000801∗∗

(0.858) (0.001) (0.279) (0.028) (0.358) (0.036)

Controlling

−0.000093 −0.000518 0.000555 −0.000082 0.000463 −0.000036

(0.811) (0.131) (0.141) (0.809) (0.218) (0.915)

Firm size −0.0298∗∗∗ −0.0331∗∗∗ 0.000451 −0.0102 −0.000947 −0.00946

(0.000) (0.000) (0.957) (0.169) (0.909) (0.199)

Year effects Yes Yes Yes Yes Yes Yes

Industry effects Yes Yes Yes Yes Yes Yes

Constant 0.534∗∗∗ 0.597∗∗∗ 0.228∗∗ 0.373∗∗∗ 0.251∗∗∗ 0.362∗∗∗

(0.000) (0.000) (0.012) (0.000) (0.005) (0.000)

Observations 539 539 539 539 539 539

Number of

ﬁrms

107 107 107 107 107 107

Wal d χ2332.5 594.4 438.0 703.0 431.7 701.4

Notes: p-values in parentheses.

∗∗∗ p<0.01; ∗∗ p<0.05; ∗p<0.1.

DISCUSSION

In this study, I explore how organizational imprint inﬂuenced state-owned ﬁrms’

response to both socialist and market prescription for board composition. I found

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Organizational Imprinting and Response to Institutional Complexity 367

that state-owned ﬁrms founded in the market logic dominant period tend to be

more responsive to the stock market prescription and have more non-state directors

because they were organized around the market logic and attuned to shareholders’

demands for legitimacy. On the other hand, state-owned ﬁrms founded in the

socialist logic dominant period tend to be less responsive to the stock market

prescription since they were born to be governed by state directors and such strong

socialist imprint persisted against the market demand for more outside directors.

It is also found that state-owned ﬁrms founded by central government agencies

tend to have fewer non-state directors because they were positioned at the center

of the socialist system at founding to accomplish the strategic goals of the central

government and had to be tightly controlled through the boards dominated by state

directors accountable to central government agencies. State-owned ﬁrms founded

by local government agencies were created at the periphery of the socialist system

to generate rent for local governments and more receptive to non-state directors

who could provide critical ﬁnancial and management support.

This study contributes to the institutional literature by examining one of the

key organizational attributes – organizational imprint – that inﬂuences the orga-

nizational response to multiple institutional pressures. Extant institutional research

treated organizations as synchronic entities and homogeneous passive recipients of

multiple institutional pressures. While recent studies explored organizational size

and institutional linkages that inﬂuenced organizational responses to incompatible

institutional demands, other key attributes that mirror the developmental history

of organizations have not been fully understood. This study chooses to examine

organizational imprint as the enabling or constraining factor of organizational

actions in the face of institutional pressures and helps improve our understanding

of the attribute formed throughout organizational history.

This study also contributes to the imprinting literature by elaborating the

founding environment. Firstly, this study shows that organizations are susceptible

to the inﬂuence of the dominant logic of organizing for certainty and legitimacy

and different founding periods are characterized by different dominant logics

of organizing that founders rely on. The dominant logic is to be reﬂected in

organizations’ structures and practices, which are institutionalized over time and

become the organizational imprint. Thus, organizations founded in the market

logic dominant period are more receptive to the governance practices prescribed

by the market logic, while organizations founded in the socialist logic dominant

period are inclined to preserve entrenched structures and resist change. Moreover,

this study also extends existing works on imprinting by examining the structure

of the founding environment – organizational positions in the institutional ﬁeld –

and demonstrates the inﬂuence of organizational imprint left by the central and

peripheral positions. It is found the central position may leave organizations with

stronger imprints than the peripheral position in the founding environment.

Finally, this study contributes to extant works of comparative corporate

governance and enhances our understanding of state-owned ﬁrms from emerging

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368 Y. Wei

economies by providing a more ﬁne-tuned deﬁnition of outsider directors. Different

from the deﬁnition of outside directors in the US context, this study deﬁnes outside

directors in the state-owned ﬁrms as directors without any afﬁliation with state-

owned ﬁrms, government agencies, and government afﬁliated agencies. It reﬂects

the major conﬂict between the state as the controlling shareholder and non-state

investors as minority shareholders in state-owned ﬁrms. This is also consistent

with the core notion that corporate governance systems are embedded in larger

institutionalized context, and that effective practices are contingent on the ﬁrms’

stakeholders in the local institutionalized context (Davis & Useem, 2002).

Limitations and Future Research Directions

Despite this study extending the organizational imprinting argument, there are

certain limitations under consideration. Firstly, my argument has received support

from the sample ﬁrms, which include all state-owned ﬁrms listed in HKSE market,

but the sample size could be enlarged. Further studies should consider including

more state-owned ﬁrms listed in other overseas stock exchange markets, such as

the New York Stock Exchange and the London Stock Exchange, to offer a better

understanding of the imprint effect. Methodologically, the GEE modelling that

uses the Huber-White sandwich estimator can provide better variance estimates of

coefﬁcients in large samples than small samples (Henderson, Miller, & Hambrick,

2006).

Secondly, this study has focused on the effect of organizational imprint, but other

organizational attributes may also inﬂuence organizational response in the face

of multiple institutional demands, such as organizational identity, organizational

structure, etc. For example, extant studies on organizational identity have shown

the competing identity claims and resulting tensions inside organizations (Pratt &

Corley, 2007) and the institutional identity that organizations claim for gaining

legitimacy (Glynn, 2008). But less attention has been given to the link between

organizational and institutional identity. How institutional identity will interact

with organizational identity and jointly inﬂuence organizations’ perception of and

responses to institutional complexity remains unclear. Future research is expected

to explore more organizational attributes in this regard.

Finally, recent discussion about ‘state capitalism’ remains controversial

(Bremmer, 2010; Musacchio & Lazzarini, 2012). With the growing number of state-

owned ﬁrms from emerging economies adopting the market logic and associated

practices, we may observe more conﬂicts and tensions inside state-owned ﬁrms

because the socialist logic encoded in state-owned ﬁrms’ structures and routines

at founding is incompatible with the newly adopted practices prescribed by the

market logic. Would there be a new hybrid logic called ‘state capitalism’? If so, how

would ﬁrms manage multiple institutional logics or form a hybrid one? Whether

and how the presence of non-state directors actually affect board decisions? This

may be another attractive area of future research to investigate.

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Organizational Imprinting and Response to Institutional Complexity 369

CONCLUSION

Research on institutional complexity has shown that organizations may confront

multiple, even conﬂicting, demands prescribed by different institutional logics in

the ﬁeld, and start to explore the organizational attributes that may affect their

responses to the institutional complexity. In this study, I suggest that organizational

imprint, which mirrors organizational history, is one of the key attributes and

argue that organizational imprint can not only be from the dominant logic of

organizing, which founders rely on during the founding period, but also from the

central versus peripheral institutional position that an organization possesses at

founding. My analysis of publicly traded Chinese state-owned ﬁrms in the Hong

Kong Stock Exchange market, facing pressures on board independence from both

the market and the socialist state, indeed shows that state-owned ﬁrms founded

in the period characterized by the dominance of the market logic tend to have

more outside directors than the ﬁrms founded in the socialist logic dominant

period. Moreover, state-owned ﬁrms founded by central government agencies

tend to have fewer outside directors than the ﬁrms founded by local government

agencies. This article contributes to the literature by showing the key role of

organizational imprint in shaping organizations’ strategic actions and extends

the imprinting theory by considering the dominant logic of organizing during

the founding period and the institutional position an organization possesses at

founding.

NOTES

I am greatly indebted to Dr. Huseyin Leblebici, for his strong guidance and support. In addition, I

would like to thank Dr. Fiona Yao and Dr. Ruth Aguilera, for their insights, generosity with their time,

and helpful comments. My colleagues in the Department of Business Administration of University of

Illinois at Urbana-Champaign deserve many thanks for their support and time. I also wish to thank

Editor-in-Chief Arie Lewin for guidance on revisions to satisfy MOR’s editorial policies. Last but not

least, the greatest debt I owe is to the love of my family.

[1] Non-tradable legal person shares, which are institutional shares, are offered to domestic

institutions and ﬁrms that have at least one non-state owner. Some institutional shares are

state institutional shares, which are held by parent ﬁrms of business groups and state-owned

asset management companies (SOAMCs) under the jurisdiction of the SASACs. Since the mid-

1990s, state-owned ﬁrms’ government owners gradually divest and moved state shares to state

institutional shares (Wang, Guthrie, & Xiao, 2011)

[2] In addition to H-shares, there are A- and B-shares traded on Mainland China stock exchanges

and N-shares traded on the New York Stock Exchange. A-shares are RMB-dominated shares for

mainland Chinese investors and Qualiﬁed Foreign Institutional Investors (QFIIs). B-shares are

issued by Chinese publicly listed companies for domestic retail investors and foreign investors,

in foreign currencies (since 2001).

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Organizational Imprinting and Response to Institutional Complexity 373

Yifan Wei (wei13@illinois.edu) is currently a PhD candidate from the College

of Business of the University of Illinois at Urbana-Champaign. His research lies

at the intersection of international business and organizational theory with a

speciﬁc interest in the institutional environment of entrepreneurship and state-

owned ﬁrms in emerging economies. He also engages in outside consulting for

international organizations and think tanks in the area of his expertise.

Manuscript received: November 24, 2014

Final version accepted: November 1, 2016 (number of revisions – 4)

Accepted by: Senior Editor Xiaowei Rose Luo

Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/mor.2016.54

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Pre-Liberalization Foundations and the FDI-Based Internationalization of SMEs from Emerging Markets

Article

Full-text available

Apr 2023

Research on the internationalization of small and medium enterprises based in emerging markets (EM-SMEs) is gaining momentum, yet, less is known about the specific factors that deter EM-SMEs' from internationalizing via foreign direct investment (FDI). In this paper, using institutional and organizational imprinting perspectives, we argue that EM-SMEs founded in the era prior to market liberalization are less likely to internationalize via FDI than those founded during or after market liberalization. We also argue that this effect is moderated by EM-SMEs' size and ownership dispersion. Our data used to test our hypotheses is based on 2,277 SMEs from 14 emerging markets. Overall, we contribute to an improved understanding of the factors that determine the FDI-based internationalization of SMEs from emerging markets.

Expanding the Scope of Institutional Logics Research

Article

Full-text available

Jan 2024

The institutional logics perspective provides a powerful theory that emphasizes how symbolic beliefs and material practices are intertwined in relatively enduring configurations that can profoundly shape behavior across space and time. In this article, we build upon the arguments and insights of Haveman, Joseph-Goteiner, and Li, suggesting the need for a broader research agenda on the dynamics of institutional logics in China and around the world. Building on some of our recent writings, we argue for the need to go beyond the study of how logics have effects, to understand how logics themselves cohere, endure, and co-evolve in dynamic interrelationships with other logics.

Do CEOs with Sent-Down Movement Experience Foster Corporate Environmental Responsibility?

Article

Full-text available

Dec 2022
J BUS ETHICS

As environmental issues have become increasingly prominent around the world, corporate environmental responsibility has begun to attract more attention. As the decision-makers of firms, top executives play an important role in the environmentally ethical behavior of their corporations. Few studies, however, have explored the motivations behind corporations’ environmentally responsible behavior from the perspective of how CEOs’ early experiences shape their decisions. This paper explores the impact that CEOs who experienced the Send-down movement have on their companies’ environmentally responsible behavior and the boundary conditions of this impact from the perspective of the imprinting theory. Based on the data of listed Chinese companies from 2009 to 2020, we have found that CEOs who were themselves “Sent-down youth” have a positive impact on corporate environmental responsibility. For firms with a higher proportion of state ownership and CEOs with Chinese Communist Party membership, the relationship between experience with the Send-down movement and corporate environmental responsibility is strengthened, whereas a higher level of market competition weakens the relationship. This article enriches and deepens the research on the imprinting theory, and it also has certain practical implications for firms that hire top executives with unique types of early experiences to promote business ethics improvement.

A comparative analysis of Indian and Chinese FDI into Africa: The role of governance and alliances

Article

Full-text available

Oct 2022
J BUS RES

This paper adopts and extends the theoretical lens of institutional imprinting to international business research. It analyses a secondary data set on Indian and Chinese foreign direct investment (FDI) flows to Africa, compiled for the period ranging from 2008 to 2018, to highlight the distinctiveness of Indian FDI. It argues that Indian FDI streams into better governed host countries with controlled corruption and high standards of accountability. This is in striking contrast with Chinese FDI, which is impervious to host country governance standards in its geopolitical quest for gaining economic supremacy in the region. India’s membership of the Commonwealth (CW) plays a vital role in the location and volume of its investments to Africa, whereas the Chinese Belt and Road Initiative (BRI) wields no influence on the location of its investment.

Socialist imprints and innovation strategies in a transition economy

Article

Jun 2024
ENTREP REGION DEV

This paper contributes to research at the intersection of institutional theory and the emerging literature on institutional imprinting by studying how the persistence and decay of founding institutional imprints affect network-based innovation strategies in small firms during later stages of economic transition. In do so, we are able to investigate both the extent of imprints and the boundary conditions that serve to strengthen or weaken their persistence. We situate our study in a fast-growing but under-studied transition economy, Vietnam, applying multiple estimation methods on a multilevel panel sample of 2644 small entrepreneurs over 6 years. Our major findings are, firstly, that firms launched before transition are influenced by socialist imprints and rely more on small and concentrated informal social networks, while firms launched after transition rely more on newer formal market institutions to generate innovations, and, secondly, that management and industry experience strengthens network-based innovation strategies and, thus, amplifies the persistence of socialist imprinting in firms established prior to transition. https://www.tandfonline.com/doi/full/10.1080/08985626.2024.2365768?scroll=top&needAccess=true

Political institutional imprinting and Chinese private enterprises’ initial ownership strategies in OFDI

Article

Apr 2024
Chin Manag Stud

Purpose There is consensus among scholars on how political institutional imprinting interprets the unique management and practice phenomenon of Chinese enterprises. However, little scholarly attention has been given to the different political institutional imprints that shape firms’ internationalization. Therefore, this study aims to investigate how communist and market logic political institutional imprintings influence firms’ initial ownership strategies in outward foreign direct investment. Design/methodology/approach Based on the propensity score matching difference in difference method and a sample of 464 foreign investments from 2009 to 2020 for 310 Chinese private firms. Findings The results show that private firms with market logic political institutional imprintings tend to adopt higher ownership and vice versa. As institutional differences increase, private firms with market logic imprintings are more risk-taking and adopt higher ownership, whereas private firms with communist imprintings are more conservative and choose lower ownership. When diplomatic relations are friendlier, private firms with market logic imprintings prefer higher ownership to grasp business opportunities and vice versa. Originality/value This study not only identifies the net effect of political institutional imprinting on private firms’ initial ownership strategy but also investigates the different moderating effects of current institutional forces to respond to the call for research on bringing history back into international business research and the fit between imprinting and the environment.

Performance implications of a corporate political strategy in Chinese firms: State versus market logics in different institutional settings

Article

Mar 2024
LONG RANGE PLANN

Institutional logics and organizational filters: Differential responses to innovation and environmentalism in China’s cleantech sector

Article

Feb 2024
J BUS RES

Chinese Management Studies: A Matched-Samples Meta-Analysis and Focused Review of Indigenous Theories

Article

Mar 2022

The field of Chinese management studies has grown tremendously over the past four decades. Management theories originating from the United States have remained dominant in the analysis of Chinese firms, prompting the question of how powerfully these Western lenses explain management practices in non-Western contexts. Through a matched-samples meta-analysis, which integrates matching techniques into meta-analysis, we compare the mean effect sizes for five classic Western management theories—institutional theory, resource dependence theory, the resource-based view, agency theory, and transaction cost theory—on 452 matched samples drawn from 1,028 U.S. and Chinese studies. Surprisingly, as compared to their U.S. counterparts, Chinese firms (a) are less responsive to coercive and mimetic pressures yet more subject to normative pressures, (b) establish fewer business relations when faced with resource dependencies and transaction costs, (c) extract more profit from managing generic strategic resources, and (d) are more sensitive to pay incentives and private blockholders. To understand the specificities of Chinese management practices, we furthermore conduct a focused review of the emerging literature on China-endemic explanations: political institutional imprinting theory, state-driven sustainable development, and China-endemic corporate governance. We conclude that indigenous theories effectively complement Western perspectives when accounting for Chinese management practices.

Impact of institutional imprinting on the persistence of superior profits: A study of regulatory punctuation in India

Article

Jan 2021
J BUS RES

Drawing upon the literature on organizational imprinting, we examine how a firm’s history impacts its performance in subsequent periods. By considering the emerging market context of India, we present evidence that the degree of imprinting of the pre-liberalization era is negatively related to the persistence of superior performance in the post-liberalization period. Furthermore, we investigate the role of imprinting attenuators and find that a firm’s listing status, international exposure, and knowledge spillovers from foreign firms weaken this baseline relationship. Empirical results based on a large unbalanced panel data set of 18,201 firm-year observations of Indian firms during the period 1991–2005 provide robust support for our conceptual model. Complementing the growing literature on the impact of contemporaneous institutional changes on performance, this study sheds light on the important role of the institutional history of firms from emerging economies.

Varieties of Capitalism

Book

Aug 2001

Applying the new economics of organization and relational theories of the firm to the problem of understanding cross‐national variation in the political economy, this volume elaborates a new understanding of the institutional differences that characterize the ‘varieties of capitalism’ found among the developed economies. Building on a distinction between ‘liberal market economies’ and ‘coordinated market economies’, it explores the impact of these variations on economic performance and many spheres of policy‐making, including macroeconomic policy, social policy, vocational training, legal decision‐making, and international economic negotiations. The volume examines the institutional complementarities across spheres of the political economy, including labour markets, markets for corporate finance, the system of skill formation, and inter‐firm collaboration on research and development that reinforce national equilibria and give rise to comparative institutional advantages, notably in the sphere of innovation where LMEs are better placed to sponsor radical innovation and CMEs to sponsor incremental innovation. By linking managerial strategy to national institutions, the volume builds a firm‐centred comparative political economy that can be used to assess the response of firms and governments to the pressures associated with globalization. Its new perspectives on the welfare state emphasize the role of business interests and of economic systems built on general or specific skills in the development of social policy. It explores the relationship between national legal systems, as well as systems of standards setting, and the political economy. The analysis has many implications for economic policy‐making, at national and international levels, in the global age.

Deng Xiaoping’s Southern Tour: Elite Politics in Post-Tiananmen China

Article

Jan 1993

S. Zhao

The Demography of Corporations and Industries

Book

Jun 2018

Economy and society: An outline of interpretive sociology (an excerpt)

Article

May 2018

M. Weber

This section presents the third volume of Max Weber's fundamental work Economy and Society which has been translated into Russian for the first time. The third volume includes two works devoted to the sociology of law. The first, 'The Economy and Laws', discusses differences between sociological and juridical approaches to studies of social processes. It describes peculiarities of normative power arenas (orders) at different levels and demonstrates how they influence the economy. The second, 'Economy and Law' ('Sociology of Law'), reviews the evolution of law orders (primarily, the three "greatest systems of law" including Roman Law, Anglo-American Law, and European Continental Law) in the context of changes in the organization of economy and structures of dominancy. Law is considered an influential factor of the rationalization of social life which in turn is affected by a rationalized economy and social management. The Journal of Economic Sociology here publishes an excerpt from the chapter 'Law, Convention and Custom' in this third volume, which shows the role of the habitual in the formation of law; explains the importance of intuition and empathy for the emergence of new orders; and discusses the changeable borders between law, convention and custom. The translation is edited by Leonid Ionin and the chapter is published with the permission of HSE Publishing House. © 2018 National Research University Higher School of Economics. All rights reserved.

2 How Actors Change Institutions: Towards a Theory of Institutional Entrepreneurship

Article