Government policies and firms’ entrepreneurial orientation: Strategic choice and institutional perspectives

Abstract

The relationship between government policies and firms’ entrepreneurial orientation has been a controversial topic in entrepreneurship research. This paper examines how economic policies promulgated by the central government can attempt to shape the entrepreneurial orientation of privately owned firms in China. Instead of adopting the environmental deterministic view, this paper builds on strategic choice theory together with institutional theory to propose that the entrepreneurs’ perception of new policies and the surrounding institutional environment interact to shape firms’ behaviors, such as their entrepreneurial activities. Specifically, the greater the entrepreneurs perceive the effectiveness of new policies to be, the more likely their firms will capitalize on such policies by engaging in entrepreneurial activities. Private firms based in institutionally developed regions, however, will not be motivated to engage in as many entrepreneurial activities as those in regions with lower levels of institutional development. Additionally, the relationship between the perceived effectiveness of new policies and entrepreneurial orientation is mitigated for firms with political connections.