Institutional environment, political connections of partial state ownership, and performance: An empirical study on listed private sector firms in China

Abstract

Purpose

The purpose of this paper is to examine whether substantial differences in institutional environment in China lead to different levels of demand for political connection.

Design/methodology/approach

Using a data set of 296 listed private sector enterprises (PSEs) in China, the authors empirically investigate the effects of institutional environmental factors upon political connection.

Findings

The authors find that the lower the level of regional property right protection, the more powerful the government intervention, and the slower the economic development, the more motivated the PSEs were to build relationship with the government via partial state ownership. However, the degree of local corruption was not correlated with the demand for political connection. The authors also find that partial state ownership in PSEs exerted a positive effect on performance.

Originality/value

Deviating from previous literature that has been mostly concerned about the economic consequences to firms caused by political connections, this paper examines the reasons for political connection among Chinese PSEs. The authors introduce a new dimension of political connection, namely, partial state ownership in PSEs.

Citation

Song, Z., Nahm, A. and Yang, J. (2016), "Institutional environment, political connections of partial state ownership, and performance: An empirical study on listed private sector firms in China", International Journal of Social Economics, Vol. 43 No. 8, pp. 856-870. https://doi.org/10.1108/IJSE-10-2014-0210