Mingling business and politics in China – Does it build value? The relationship between political connection and firm performance
Journal of Strategy and Management
ISSN: 1755-425X
Article publication date: 24 July 2023
Issue publication date: 5 February 2024
Abstract
Purpose
This study aims to examine how business executives' political connections are associated with government subsidies and strategic change, and how they, in turn, influence firm performance, measured by return on assets (ROA) and market share.
Design/methodology/approach
Hypotheses were tested using the large firm-level dataset provided by the National Bureau of Statistics (NBS) of China for the period 2003–2013. This is one of the most comprehensive datasets of Chinese manufacturing companies and includes 321,722 firms on average per year, which spans over 37 industries.
Findings
The authors found that political connections, measured by senior executives' membership in the National People's Congress of China (NPC), were positively associated with government subsidies but were not associated with strategic change. Also, government subsidies, as the underlying mechanism, mediated the relationships between NPC membership and firm performance but strategic change did not.
Research limitations/implications
By examining the possible mediators between corporate political strategies and firm performance, the authors confirmed the thought that the impact of political connections on firm performance is a complex phenomenon and goes beyond a simple direct effect. However, future research could explore other mediators in this relationship.
Originality/value
While the direct relationship between political connections and firm performance has been examined in management literature, the results are mixed. For the first time, the authors addressed the gap and opened the “black box” – the underlying mechanisms of this relationship. This study's findings contribute to the literature on corporate political activity, strategic change, and their influences on firm performance.
Keywords
Citation
Yang, X., Dong, L. and Nahm, A. (2024), "Mingling business and politics in China – Does it build value? The relationship between political connection and firm performance", Journal of Strategy and Management, Vol. 17 No. 1, pp. 22-40. https://doi.org/10.1108/JSMA-03-2023-0041
Publisher
:Emerald Publishing Limited
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