Institutional contingencies of firms' strategic choices

by 1978- Zhou, Qi

Many scholars today agree that institutions matter, but how they matter, for what strategies, under what circumstances, and to what extent are not well understood in the literature. Most of the existing research has focused on the effect of national culture on firms’ strategic choices in international expansions. However, the effect of formal institutions, such as legal systems, political structures, and rules governing corporate transparency, has yet to be studied extensively. My dissertation investigates this central question: How do institutions affect firms’ strategic choices and performance? Utilizing both theoretical modeling and empirical analysis, I investigate the impact of different dimensions of institutions on three important business strategies: strategies in managing business-to-business relationships, strategies in dealing with business- to- government relationships, and strategies on foreign expansions in my three essays of the dissertation respectively. Specifically, my first essay models the cross-country heterogeneity in the orientation of choosing relational transactions versus arm’s length transactions, as well as the dynamics of governance choices during institutional transitions. My second essay empirically examines the institutional antecedents and growth consequences of bribery strategy, and finds that poor market-supporting institutions lead to more bribery and hurt the growth of small firms, although the growth of large firms remains unaffected. My third essay explores the effect of information institutions governing corporate transparency on bidders’ market performance in international acquisitions. The empirical ii results show that investors will discount the value of the bidders when there is high information asymmetry due to poor information institutions in a target country. However, the degree of discount is also contingent on micro firm-level and transaction-level factors. In sum, these three essays systematically explore the effect of formal institutions on a series of critical business strategies by identifying how institutions matter, to what extent and in what way. My whole dissertation therefore is designed to contribute to an institution-based view of business strategies. iii