Does Institutional Change in Universities Influence High-Tech Entrepreneurship? Evidence from China’s Project 985

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Does Institutional Change in Universities Influence High-Tech Entrepreneurship? Evidence from China’s Project 985 Charles E. Eesley Jian Bai Li Delin Yang

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Institutionalization Prior theory on institutionalization: 3 stages (Berger and Luckmann, 1966; Tolbert and Zucker, 1996; Scott, 2013) Habituation: patterned behavior Objectification: shared meanings Sedimentation: exteriority Implicit assumption: relevant practitioners initiate institutionalization process

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Practitioner vs. Non-practitioner Practitioner initiates institutionalization: Habituated practices emerge out of repeated working responses to real-life problems Objectification a posteriori: meanings analytically abstracted from repeated practice ?Habituation serves as a filter: institutionalized ideas, structures, and practices must be viable within the larger institutional environment

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Practitioner vs. Non-practitioner Non-practitioner initiates institutionalization Insufficient knowledge of challenges practitioners face and insufficient incentive to find workable practices to tackle these challenges Objectification a priori: meanings synthetically constructed or taken from another context ?Institutional inconsistency: institutionalized beliefs and practices don’t conform to the realities of the larger institutional context

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Research Question How does institutional change that attempts to institutionalize beliefs actually affect the behavior and performance of their target organizations when such beliefs are inconsistent with the larger institutional environment?

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Context: Project 985 Gov't policy: launched May 4th, 1998 Aim: increase the national innovative and technological capability of China Increase beliefs about the importance of intellectual property and innovation Provided funding to universities for R&D (10-20% increase per year for 5 years) At discretion of the univ Equipment, labs, international conferences, attract overseas researchers, new curricula Increased publication rates (Zhang et al., 2013)

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Hypotheses Project 985 fosters local environments that are conductive to the emergence of positive beliefs regarding innovation and IP Teachers and research mentors Curriculum changes Opportunities to practice innovation in lab settings H1: Alumni who graduate from 985 universities after the implementation of Project 985 are more likely to hold the belief that intellectual property protection is important.

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Hypotheses Beliefs and strategic behavior Beliefs act as guides for how to interpret info & make decisions (Rindova and Kotha, 2001; Tripsas, 2009) Belief in innovation and IP ? propensity to engage in innovation H2: Firms founded by alumni who hold the belief that IP is important are likely to invest more in technologically intensive activities.

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Hypotheses Innovation and IP is inconsistent with China’s institutional environment Poor IP protection, contract laws, and judiciary institutions (Xin and Pearce, 1996; Peng and Luo, 2000; Li and Zhang, 2007) H3: Firms that invest more in technologically intensive activities are more likely to exhibit lower performance.

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Survey Construction Refined our measures through in-depth interviews with 42 entrepreneurs, investors, and government officials. Better understand the context of our study and improve the appropriateness and precision of our survey questions. Follow-up phone calls with some of our respondents after the surveys were collected to gain better understanding of their answers.

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Sample Population: 62.5% in engineering 11.9% in sciences 12.9% in humanities (architecture, medicine and law comprise the remainder) 25-30% women19.2% doctorate degrees 53.4% graduate degrees Tsinghua survey sample: 62.2% engineering 10.6% sciences13.7% humanities 28% women 19.3% doctorate degrees 53.9% graduate degrees

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Sample Tsinghua alumni survey: 723 entrepreneurs 570 - highest degree from 985 university 153 - highest degree from non-985 university Slight increase in entrepreneurship post-985, no differences in human/social capital levels Advantages: difference in where individuals received highest degree enables us to test our hypotheses

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Variables Dependent Variables H1: IP Importance, measure of alumni’s beliefs regarding the importance of IP protection H2: ln(R&D intensity), measure of entrepreneurs’ activities regarding technology innovation H3: ln(Revenues), measure of performance (most recent year)

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Variables Independent Variables H1: Post*Treated, differences-in-differences estimator of Project 985’s effects on beliefs regarding innovation H2: IP Importance H3: ln(R&D Intensity)

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Variables Controls Human Capital (Overseas, Masters, PhD, serial) Social Capital (govindex, student leader, Communist Party) University (Highest University Rank) Firm-level controls (Firm Size, firm age) Industry fixed effects Macroeconomic conditions (GDP)

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Econometric Analysis H1: differences-in-differences analysis Treatment group: Tsinghua alumni who received highest degree from 985 university Control group: Tsinghua alumni who received highest degree from non-985 university Treatment and control universities are matched along key attributes Pre - post difference based on graduation year Model: IP Importance=ordinal logit(Post985, Treated, Post985*Treated, Controls, Error)

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Econometric Analysis H2: test direct effect of IP Importance on ln(R&D Intensity) H3: test direct effects of ln(R&D Intensity) on ln(Revenues) Models: H2: ln(R&D Intensity)=ols(IP Importance, Controls, Error) H3: ln(Revenues)=ols[ln(R&D Intensity), Controls, Error]

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Discussion RQ: how inconsistent institutionalization attempts actually affect their target organizations Findings: Beliefs and practices can still become objectified in a localized context—even if they’re inconsistent Inconsistent beliefs and practices do lead to lower performance, such that they are unlikely to acquire exteriority

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“Yes Project 985…had a pretty big effect on how I view innovation and IP. Before I had no idea what IP even was…I mean everyone in China downloaded stuff off of the internet and bought [pirated] CD’s, and nobody really cared [about IP]. Now I’m starting to see that, if I want to make money off of my innovations, then IP is pretty important.”

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“I know that a lot of [Chinese] people are hyped about technology entrepreneurship, but I think that the kind of technology entrepreneurship that happens in Silicon Valley won’t work [in China]. People forget that China is still a command economy, and Silicon-Valley style innovation doesn’t work so well in a command economy. So even if you innovate, you still have to play by the command economy rules…and that’s hard.”

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Discussion Contributions: Boundary condition: distance between actors initiating institutionalization and relevant practice Smaller distance ? address inconsistency during habituation Larger distance ? inconsistency may not be apparent until the sedimentation stage, when objectified beliefs and practices come into contact with the larger environment

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Discussion Policy implications: Importing beliefs, practices, and policies from developed to emerging markets may not be viable “Fit” between specific policies and larger institutional environment is critical

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Thank You! Charles E. Eesley Jian Bai Li Delin Yang Management Science and Engineering Stanford University [email protected] [email protected]

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Robustness Checks Alternative measures Factor created out of ip_importance, product newness, and development time entrepreneurial performance by using ln(Firm_size) Selection effects - two-step Heckman model

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Robustness Checks University or Graduate School Effects Remove Tsinghua/Beida, non-grad students Alternative Explanations Increased the likelihood for individuals with lower human or social capital to start new ventures Project 985 may have led to the founding of a few very high-performing firms - Quantile regression

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