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The impact of political ties on firms’ innovation capability: Evidence from China

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Abstract

Though the benefits of political ties in emerging markets are well-documented, their potential negative impact on firms' innovation capabilities (i.e., the efficiency of transforming resource inputs into innovative outputs) has not been thoroughly explored. Building on the upper echelons theory, we propose that political ties hinder innovation capabilities by diverting executives’ focus away from innovation transformation. We also suggest that the detrimental effect of political ties is weakened for firms with executives having R&D backgrounds or overseas experience. Our findings based on publicly listed private manufacturing firms in China from 2008 to 2017 confirm our predictions, after correcting for endogeneity. These findings offer a new theoretical lens to explain political ties’ dark side and a nuanced understanding on how to leverage political ties effectively in emerging markets.

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Notes

  1. We consider a firm as having either archived or ascribed political ties if it had such ties in any year within the time window (i.e., 2008-2016). A firm is considered to have both types of political ties if it had both archived and ascribed ties in the same year. However, a firm may have only one type of political ties in different years within the time window. Therefore, the number of firms with archived ties plus the number of firms with ascribed ties minus the number of firms with both ties is greater than the actual number of firms with both ties (i.e., 270 + 323—99 = 494 > 445).

  2. The estimated mean value of the dependent variable (i.e., innovation capability) is 33.832 for firms without political ties based on the regression results reported in Model 5 (see Table 3), and it is 32.665 for firms with political ties. Therefore, the marginal effect equals − 3.45% (i.e., [32.665 − 33.832]/33.832). The same below.

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Acknowledgements

The authors thank editor Pei Sun and the anonymous reviewers for their constructive comments and encouragement. We would also like to thank Kevin Zheng Zhou for his help and suggestions. The authors acknowledge the funding from the National Natural Science Foundation of China (No. 71602173, 72032007, 71972159) and Chongqing Social Science Planning Project under Grant 2022PY42.

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    Authors and Affiliations

    1. Business School, Southwest University of Political Science and Law, Chongqing, China

      Kui Wang

    2. School of Business Administration, South China University of Technology, Guangzhou, Guangdong, China

      Qiyuan Zhang

    3. School of Business and Management, The Hong Kong University of Science and Technology, Kowloon, Hong Kong

      Danqing Wang

    4. School of Management, Jinan University, Guangzhou, Guangdong, China

      Defeng Yang

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    Appendix

    Appendix

    Table 6

    Table 6 Variable measurement
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    Table 7

    Table 7 Parameter estimates for the input variables
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    Table 8

    Table 8 Matching results and quality assessment (logistic estimation results, pre- and post-match differences, and percentage bias reduction)
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    Figure 3

    Fig. 3
    figure 3

    Treatment and control group density functions, before and after

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    Wang, K., Zhang, Q., Wang, D. et al. The impact of political ties on firms’ innovation capability: Evidence from China. Asia Pac J Manag (2023). https://doi.org/10.1007/s10490-023-09885-6

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