Entrepreneurial strategies during institutional changes: Evidence from China's economic transition

Abstract Research Summary Institutional changes create entrepreneurial opportunities and entrepreneurs strategically respond to institutional pressure. However, we lack an understanding of how institutional changes impact entrepreneurial strategies. By exploiting the regional disparities in China's economic transition, we examine how institutional changes alter the effects of entrepreneurial strategies. Using data from an alumni survey in China, we find that relationship‐based strategies are positively associated with firm size in the early stage of the institutional change, innovation‐based strategies appear more effective in the late stage, and “cocoon‐based” strategies are associated with larger firm size in the intermediate stage. We propose that entrepreneurs may temporarily leverage “cocoon institutions” to buffer uncertainty in the broader institutional environment. Overall, we contribute to research at the intersection of institutional change and entrepreneurial strategies. Managerial Summary Institutional environments influence the effectiveness of entrepreneurial strategies. How should entrepreneurs adopt different strategies at different stages of an institutional change? We tackle this question by examining China's transition from a planned economy to a market economy. Using data from an alumni survey in China, we find that relationship‐based strategies promote firm growth in the early stage, innovation‐based strategies appear more effective in the late stage, and locating in science parks benefits firm growth in the intermediate stage. Overall, our study implies that entrepreneurs should adopt different strategies to fit different types of institutional environments. Also, our study provides implications to policymakers that cocoon institutions, such as science parks, may be temporarily effective during the intermediate stage of an institutional change.