Several studies suggest that political ties help firms survive or perform but do not examine the boundary conditions concerning which types of firms and which type of ties help firms. We draw from resource dependence and resource-based theories to argue that political ties can improve both firm survival (labeled "buffering") and performance (labeled "enabling"), with weaker firms gaining more from buffering and stronger firms gaining more from enabling. We further examine the relative impact of local and central ties. We test our hypotheses on the television manufacturing industry in China between 1993 and2003. Results demonstrate the buffering roles of political ties, and under narrower conditions, their enabling roles. Local ties account for these outcomes, while central ties do not provide buffering or enabling benefits.
Research Summary
Non‐profit organizations in emerging markets frequently have to manage relations with governments and for‐profit firms. We advance a multistakeholder perspective and develop propositions about how the political ties of charities influence their success in raising funds from corporate donors. Evidence from 2,054 Chinese charities during 2005–2012 shows that organizational political ties, established through formal affiliation with the government, aid fundraising from corporate donors, whereas personal political ties, formed through personal political services of senior leaders of charities, have no such effect. The positive effect of government affiliation is relevant for both foreign and domestic donors, but stronger for domestic ones. These results highlight the differential impact and contingent value of political embeddedness for charities' ability to acquire resources from for‐profit business, contributing to both stakeholder theory and the political embeddedness perspective.
Managerial Summary
Non‐profit organizations have to maintain productive relations with multiple stakeholders, including government and business. We focus on Chinese charities that seek to raise funds to fulfill their mission. We identify how their political relations influence the behavior of corporate donors. Evidence from 2,054 charities from 2005 to 2012 shows that political ties formed through organizational affiliation with a political body help charities attract corporate donors that seek legitimacy. In contrast, ties formed through personal connections with politicians have less influence on donors who perceive a high risk of connected insiders engaging in activities of dubious legality. The value of political ties is more pronounced for domestic corporate donors.
We examine how formal interlocking political ties between business leaders and political actors affect sell-off strategy of firms in emerging markets. We propose that political ties substitute for underdeveloped institutions and provide firms with market intermediation, influence over political actors, and access to resources. These benefits increase the likelihood that firms with political ties will exit through sell-offs, which is an adaptation strategy in emerging markets. We propose that the effectiveness of political ties in facilitating sell-offs is contingent on the type of political ties and the state of institutional development. Empirically, we evaluate 280 television manufacturers in China between 1993 and2003. Results show that political ties can help firms exit through sell-offs but that these effects are primarily from ties to actors with executive authority rather than legislative authority. The value of executive ties declines with capital market development, while that of legislative ties increases with legal system development. We show that political ties help firms exit an industry, clarify the conditions under which they are valuable during institutional transition, and improve understanding of the seller's perspective in acquisitions.
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