Institutional gap and enterprise behavior: Evidence from China

Alternative institutions have played a significant role in the difficult and tenacious development process of private enterprises in recent decades. the paper applied 306 listed companies' data from January 2012 to December 2022 to investigate the relationship between institutional gap and enterprise behavior. Based on the identified, classified, and explained formal and alternative institutions, it proposed the concept of 'institutional gap' to infer the overlapped content of these two states. Concluding from the empirical results, Chinese private enterprises that introduced state-owned equity outperformance in management, financing and entering industries with high barriers. Moreover, the channel of state-owned equity introduction is compared with entrepreneurs' political participation. Although introducing state-owned equity is a crucial approach, the establishment and improvement of relevant legal systems is suggested, such as formal regulations and laws. The government should deepen the reform of the economic system to improve the business environment, so private enterprises consciously rely on market mechanisms to allocate resources efficiently and rationally, instead of actively seeking connections with the government to obtain benefits. The supervisory role of checks and balances shareholders should be exerted to the greatest extent to maintain and increase the value of state-owned assets, rather than allowing the controlling private shareholders to use them as resources acquired political capital.