Economic transitions in countries that move from state planning and redistribution to market exchange create business opportunities but also uncertainty, because many interdependent factors-modes of exchange, types of products, and forms of organizations-are in flux. Uncertainty is even greater when the country's political institutions remain authoritarian because the rule of law is weak and state bureaucrats retain power over the economy. This study of listed firms in China, which has recently seen economic transition but persistent authoritarianism, shows that in such contexts, firms can reduce uncertainty by developing relationships with state bureaucrats, which help firms learn how state bureaucracies operate and engender trust between firms and bureaucrats. Together, knowledge and trust stabilize operations and help persuade bureaucrats to lighten regulatory burdens, grant firms access to statecontrolled resources, and improve government oversight. Our results show that as economic transitions proceed and uncertainty increases, business-state ties increasingly improve firm performance. We also investigate two likely contingencies, industry and firm size, and two important causal mechanisms, access to bank loans and protection from related-party loans, and show that the value of business-state relations varies over time, depending on the trajectory of both economic and political institutions.
This paper investigates how the structure of political institutions influences the effectiveness of corporate political lobbying by shaping the “veto points” and “entry points” that lobbying firms encounter and require, respectively, when attempting to influence public policies; in so doing, this study deepens our understanding of the strategic implications of institutional environments. Using large-sample and cross-country firm-level data, we find that the influence of firms’ lobbying activities on public policies is weakened when there are tighter constraints generated as a result of greater political (partisan) competition and more subnational government tiers. We find that the negative association between the effectiveness of lobbying and political (partisan) competition is particularly pronounced in countries with lower electoral accountability and that the negative association between the effectiveness of lobbying and subnational government tiers is particularly pronounced in more centralized political systems.
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