Abstract

This study explores whether or not a firm’s ownership status, as state-owned enterprise or private-owned enterprise, will influence its likelihood of engaging in illegality in China. We build our arguments on the institution-based view, positing that firms rationally pursue their interests in the distinct institutional context of China. Compared to SOEs, POEs have limited access to institutional resources, the lack of which threatens their development or even survival, forcing them to “break rules” to overcome institutional barriers. We thus suggest that POEs demonstrate a higher propensity to engage in illegal actions than SOEs do. However, if POEs could gain access to more institutional resources, their motivation to engage in illegal actions is likely to decrease. Following this logic, we suggest that political connections and market development will mitigate the likelihood that POEs will engage in illegal actions. We find support for our predictions using evidence from Chinese listed manufacturers. Our research contributes to the literature by revealing the institutional aspects of corporate illegality in transitional economies.