Firm characteristics and informal governance of business operations in the Pearl River Delta, China

This paper describes the Chinese economic and institutional reform process as a gradual transition of an informal, relation-based governance system into a more formal and rule-based governance system. The consequences of macro-level institutional reforms on the importance of personal relationships for the firm-level governance of business operations are discussed. Theoretical considerations suggest that in a transition economy such as China companies’ incentives to reduce the reliance on personal relationships should depend on firm characteristics such as the age, size and the internationalization of the firm. We confront these suppositions with empirical data obtained from a company survey performed among 222 companies in the electronics industry operating in the Pearl River Delta, China. From this we obtain some, though often weak, evidence in favor of the suppositions.