La Actividad de los Restaurantes en el Centro Histórico de Quito

It is generally assumed that national models will tilt towards one of the two ideal type systems described above. This section presents a stream of literature that argues that more than one model can cohabitate within a single jurisdiction and that recognizing domestic heterogeneity requires the conceptualization of corporate governance forms as open systems in which practices interact with institutional contingencies. Indeed, recent developments in research stress the need to endogenize a broader range of factors when explaining the emergence and persistence of different forms of corporate governance. In this regard, China poses a challenge to conventional economic theory. Despite weak legal institutions, a thin financial market and environmental uncertainty, private businesses have been growing steadily. In other words, “despite the absence of formal private property rights, Chinese entrepreneurs have felt sufficiently secure to make large investments, making that country by far the world's fastest growing economy over the last two decades.” (Rodrik, Subramanian, & Trebbi, 2004: 157) Yet, while China has defied predictions of classical economic theory, nothing suggests that standard economic concepts don’t apply in China. John Child (1994: 301) explains that “the conceptual tools for analyzing organizational fundamentals such as authority, control, structures of governance, normative systems, property rights, [...] supply the bricks from which a reasonably adequate representation of the Chinese case can be constructed”. The Chinese experience might just call for more subtle adaptation to the local context. A contextualized approach conceives of institutions as influencing the interests and identities of actors (Aguilera & Jackson, 2010).Aguilera and Jackson (2003) propose that the specific roles played by capital, management and labor and the interactions among them are shaped by institutional configurations. Their idea rely on the assumptions that different types of investors (banks, families, funds, state, etc.) and different managerial cultures result in different interests and that relations among actors are socially embedded rather than isolated from the institutional context (Dacin, Ventresca, & Beal, 1999).

Firstly, the institutional context is itself shaped by relations among actors. Since the meaning of law is often negotiated in the marketplace (Dobbin & Sutton, 1998; Edelman & Suchman, 1997), the implementation of new norms and practices is often the theatre for power

confrontations between interest groups. While the rule of law has long been conceived as a prerequisite for the rise of functioning markets, new insights suggest that effective legal frameworks only rise in “response to a failing self-enforcement mechanism” (Krug, 2012: 357; see also Dixit, 2007). However, the proper implementation and enforcement of laws, even when they are desired by market players to palliate failing informal institutions, can be hampered by political embeddedness. For instance, the usage of the enterprise bankruptcy law in China is limited by a lack of cohesion in the state administration regarding its implementation, which leads to ambiguity in its application and a general preference to settle disputes outside courts in processes that are subject to political agents' interference and discretion (Krug, 2012). Political embeddedness can thus be a force for path dependence by limiting the usage of law.

Secondly, the economic actors and the relations among them are shaped by the institutional context. Shareholders across jurisdictions might not fit the same ideal type (Aguilera & Jackson, 2010). While the need for any investing party to gain sufficient assurances that the terms agreed upon regarding decision making rights, income rights and exit options is present in all contexts, the mechanisms used to achieve a sufficient level of protection might differ in an environment characterized by weak legal institutions and high uncertainty. In other words, distinct mechanisms can be functional equivalents, or substitutes. The concept of substitution is expressed clearly in Ahlering and Deakin’s (2007: 872) comparative study of international systems: “by virtue of functional continuity, in addition to observing complementarities within national systems, we are likely to observe functional substitutes or equivalents -institutions that substitute for one another in the sense of performing a similar function in different ways- across systems”. Actors in different systems therefore have different legal and institutional tools at their disposal to structure their relations.

This is also the case at the national level, where a diversity of equally successful practices and organizational forms can emerge. Scholars are increasingly aware of the richness of the variety of effective institutions in local marketplaces (Krug & Hendrischke, 2012; Meyer et al., 2009; Peng et al., 2008). Whitley (2006: 192) stresses that “not all states can be expected to establish a single kind of business system throughout all regions and sectors of an economy” and that “the nature of firms, their strategies, and capabilities frequently vary

between sectors, technological regimes, and regions within countries”. Consistent with Whitley’s view of organizational heterogeneity, and following a tradition that recognizes the decentralized nature of property transformation in transition economies (Stark, 1996), organizational level analyzes promises to best explain the nature of market institutions that are effectively used in the realm of corporate governance.

The typical approach of corporate governance studies to examine practices in silo is ill-fitted to the analysis of functional equivalents. While some elements can be individually beneficial, another stream of literature conceives corporate governance rather as a configuration of multiple interdependent practices that maintain internal coherence as a system (Beatty & Zajac, 1994; Davis & Useem, 2002). New insights from the comparative corporate governance literature emphasize the need for an open systems perspective, taking environmental contingencies into account in addition to internal complementarities. For long, research on the effectiveness of corporate governance has mostly paid attention to internal factors, such as practices and structures that allocate decision making rights within the firm and among key stakeholders. Aguilera et al. (2008) propose that a richer understanding of corporate governance should incorporate an open system approach, in which organizational practices and structures are inherently interdependent with the environmental context. Such an approach allows, as opposed to closed system approaches such as agency or stakeholder theories, to “uncover the diversity of arrangements and to understand how the effectiveness of governance practices is mediated by their fit or alignment with situational variables (context) arising in diverse organizational environments.” (Aguilera et al., 2008: 476).

The open systems approach provides an insightful framework to analyze the patterned variation of outcomes emerging from interdependencies between the external context and internal practices in different types of firms. Aguilera et al. (2008) characterize this fit of practices with the institutional and competitive environment as the contingencies. These should be analyzed simultaneously with internal complementarities, which assume that some governance practices cannot be implemented in silo but rather become effective only in conjunction with other practices or structures. Finally, the opportunity costs of implementation and the benefits of a given practice will vary across environments. Taking

into account different configurations of practices within organizations and the subtle environmental contingencies surrounding them is necessary to flesh out the domestic diversity of forms of corporate governance. For the purpose of the present study, to bring context to the analysis as suggested in the literature asks for the identification of China- specific factors and how those factors might complement or supplement features of the ideal type systems of corporate governance.