Market Transition and Entrepreneurial Beliefs

Abstract

This study explores how societal-level institutional changes, specifically market transition in emerging economies such as China, shape entrepreneurial beliefs. While market transition is typically expected to foster rationalization and professionalism, thus diminishing traditional beliefs such as familism and nepotism, real-world observations suggest an opposite trend. To address this puzzle, we argue that, while market transition can facilitate the development of formal institutions, it also has unanticipated consequences, that is, a decline in social trust and an increase in psychological uncertainty, thus prompting entrepreneurs to adhere to traditional beliefs rather than adopt modern ones. In addition, we contend that entrepreneurs’ social origins moderate the impact of market transition on their beliefs because, as a key stratification mechanism, they can shape entrepreneurs’ vulnerability to declining social trust and heightened psychological uncertainty. Our analysis of national survey data on Chinese private entrepreneurs supports these arguments, thus offering a more nuanced understanding of how market transition influences entrepreneurial cognition and behavior and explaining the persistence of traditional beliefs despite market reforms.