ABSTRACT
This chapter considers the governance of Chinese private firms and their managerial capabilities. Governance is defined as the institutional regulation of firms’ internal management and external transactions. A firm’s ownership and internal governance structure affect its managers’ freedom to make decisions. The extent to which a firm is permitted to conduct market transactions directly with customers and providers of resources, rather than through administrative intermediaries or their rules, also determines its managerial discretion. Analysts have taken the type of ownership and degree of marketisation to be the defining institutional attributes of the different forms of business system now present in China, distinguishing the private firm from others more beholden to government authorities (Nee 1992; Boisot and Child 1996). The fact that private firms in China have more freedom to pursue entrepreneurial and flexible strategies is undoubtedly a factor in their generally superior profitability (Li and Tse 1999). However, their ability to capitalise on this freedom of action, and to cope with the new demands that accompany growth, also depends on their managerial capabilities.
