Wang Tao,Zhang Ting,Shou Zhigang

Publication:

Asia Pacific Journal of Management

Abstract:

To improve our understanding of the bright side and the dark side of political ties and determine the processes linking political ties to firm performance in emerging markets, we investigate the underlying mechanism of political ties’ effects from the perspective of dynamic capability theory and institutional theory. We posit that reduced market-focused innovation capability and strengthened legitimacy mediate the effect of political ties on firm performance. In addition, to capture the nature of the relationship between political ties and performance, we adopt a contingency perspective in our examination of the moderating roles of legal enforceability and competitive intensity. Specifically, we suggest that legal enforceability buffers the negative impact of political ties on market-focused innovation capability but mitigates the positive impact of political ties on firm legitimacy. Moreover, competitive intensity enhances the positive impact of market-focused innovation capability and firm legitimacy on firm performance. We test our hypotheses using a survey with 362 respondents in China. In conclusion, our findings provide important insights into how Chinese firms effectively utilize political ties to improve their performance.