Determining the power of political connections
Businesses need to consider the value government links offer, and whether they should pursue central or local authority contacts
Whether it is passing laws, setting policies, providing infrastructure and access to capital or facilitating market entry, government actions can have a powerful effect on the performance of companies.
Not surprisingly, government involvement in the marketplace and firms’ political activities have led to increased scrutiny of business-government political ties and governments’ impact on firms’ performance.
Past research has shown that political ties can help companies survive and may improve their financial returns and market value. These studies suggest there is value for a company and its management to develop and nurture political connections.
Political ties are costly to establish and maintain, however. So how effectively and under what conditions can they enhance a firm’s survival and performance?
To answer this question, we studied 280 companies in China’s television manufacturing industry during its critical period from 1993 to 2003 when the sector had grown to be the largest in the world, and was experiencing intense competition after the government deregulated it.
