Institutional complexity, management practices, and firm productivity

Abstract

Formal structure is often considered important for the growth and survival of firms. Within the literature focused on the institutional antecedents of formalization, less attention has been paid to the drivers of formal management practices. To help fill this gap, we study how state and market institutional logics affect the adoption and utility of formal management practices in manufacturing firms. We theorize how institutional complexity, resulting from coexistent, conflicting state and market institutional logics, may exert differential pressure on state-owned and private firms’ decisions to adopt these practices, diverging from prior studies that focus primarily on the role of market logics in their adoption. We then test these propositions in a representative sample of 390 manufacturing firms in China with uniquely detailed data on structured management practices using regression analysis. Variation in ownership differentiates the relative influence of state and market institutional logics on firms in China’s transition economy. We find that measures of structured management practices are higher for state-owned firms, while scores are significantly lower for 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. Our findings support a role for structured management practices as a response to institutional complexity, by enabling firms to satisfy multiple imperatives from distinct audiences.