LEGAL UNFAIRNESS, ENTREPRENEURSHIP AND INNOVATION IN CHINA

Abstract

The scholarship of entrepreneurship has identified the significance of institutional and social factors in accounting for entrepreneurial activity and firm innovation, especially in emerging economies and transitional societies. However, the lion’s share of the existent literature focuses on entrepreneurs’ characteristics and psychological traits and firms’ structures and strategies. In this study, I develop a relatively comprehensive analytic framework to study the interactive relationships between economic actors’ institutional trust, risk-taking activities and their risk-sharing with social and political actors in shaping firm innovativeness. By analyzing a nationally representative sample of Chinese private companies, I find that entrepreneurs’ legal confidence, risk-taking and risk-sharing activities are positively associated with firm innovativeness, respectively. Entrepreneurs’ risk-taking and risk-sharing activities can substitute for the role of entrepreneurs’ trust in China’s legal system in shaping firm innovativeness. Entrepreneurs’ social ties serve as the most salient factor that modulates the association between entrepreneurs’ institutional trust and innovative activities.