LEGAL UNFAIRNESS, ENTREPRENEURSHIP and INNOVATION in China

The scholarship of entrepreneurship has identified the significance of institutional and social factors in accounting for entrepreneurial activity and firm innovation, especially in emerging economies and transitional societies. However, the lion\u27s share of the existent literature focuses on entrepreneurs\u27 characteristics and psychological traits and firms\u27 structures and strategies. In this study, I develop a relatively comprehensive analytic framework to study the interactive relationships between economic actors\u27 institutional trust, risk-taking activities and their risk-sharing with social and political actors in shaping firm innovativeness. By analyzing a nationally representative sample of Chinese private companies, I find that entrepreneurs\u27 legal confidence, risk-taking and risk-sharing activities are positively associated with firm innovativeness, respectively. Entrepreneurs\u27 risk-taking and risk-sharing activities can substitute for the role of entrepreneurs\u27 trust in China\u27s legal system in shaping firm innovativeness. Entrepreneurs\u27 social ties serve as the most salient factor that modulates the association between entrepreneurs\u27 institutional trust and innovative activities