Can foreign firms benefit from promarket Reforms in emerging economy? Toward a dynamic institution-based view

Abstract

This study examines how the process of promarket reforms undergoing in emerging economy influences the performance of foreign firms operating there. Unlike extant research that focuses on the development level of institutional environments, we highlight a dynamic view of the institutional environment that resulted from the fundamental promarket reforms. A longitudinal analysis of 69,357 foreign firms established in China spanning ten years shows that the performance of foreign firms suffers from the slowness, unpredictability, and un-synchronization of promarket reforms. Our findings also reveal that relying on local entities by partnering with state-owned enterprises can help foreign firms handle the slowness of promarket reforms whereas accessing parent firms’ global resources via higher level of foreign ownership can help alleviate the negative effects of the unpredictability of promarket reforms.