Economic Transition And Business Risks In Chinese Private Firms: Disentangling Organizational And Project Risks

Abstract

To the extent that firm decisions are made under uncertainty, all firms need to deal with risk. The concept of risk is relatively unexplored in transitional economies. This study attempts to examine risk issues in Chinese private firms during different phases of economic transition. I distinguish between organizational and project level risks and argue that China’s economic transition affects the two levels of risk in different ways. I investigate private firms’ risk behavior based on the specific risk they face. My central argument is that firm risk needs to be examined beyond a unidimensional perspective and firms’ risk behavior may vary, depending on the risk they deal with. This study takes a step toward understanding the relationship between private property and risk taking in China’s transitional economy, a question raised by Phan, Zhou, and Abrahamson (2010) recently.