ABSTRACT: Drawing insights from the institution-based view (IBV) of the firm and from biological evolutionary theory, this paper proposes a theoretical framework that explains how companies choose governance strategies for controlling exchange hazards in different kinds of institutional voids. Institution-based capability, defined as the capability to survive in or adapt to the institutional environment, is advanced as a key explanatory variable. A survey was conducted in China to test the hypotheses derived from this framework. The findings are discussed with a focus on the roles that human biological proclivities play in organizational processes.