Institutional embeddedness renewal or overembeddedness : The case of business groups in China

Purpose – Viewing business groups as institutionally embedded agents, the purpose of this paper is to theoretically addresses the distinctions between institutional embeddedness renewal and overembeddedness, and empirically analyzes the proposed effecting mechanisms in the context of China. Design/methodology/approach – The paper predicts the specific performance effects accompanying the collective and local processes governing systematic institutional embeddedness phenomena, and examine the proposed hypotheses using a real experimental setting of Chinese business groups during the period of enterprise reform and stock market liberalization, employing data on 38 business groups in the textile industry from 2000 to 2008. Findings – The results of the econometric analysis support an optimistic view that business groups can strategically renew their embeddedness even in the late stages of market-oriented institutional transition as in China. Specifically: first, the positive effect of the self-enhancing isomorphic pressure around both the new and the old institutions implies the relative dominance of systematic institutional embeddedness renewal within business group communities; second, at the local level, institutional strategies promoting the market orientation of adopted organizational forms bring about not only positive but also negative effects, suggesting the need to manage a simultaneous significant risk of overembeddedness. Originality/value – The paper establishes an institutional strategy framework to predict potential effects associated with systematic institutional embeddedness phenomena, such as institutional embeddedness renewal and overembeddedness, in the context of market-oriented institutional transition.