Impact of Political Connection Strength on the Internationalization Outcome of Chinese Firms: Perspectives from Market Exploration and Technology Acquisition

Abstract

Although the role of a home country's government in firms' internationalization processes has been investigated, there is a gap in the literature concerning the effectiveness of the government's effort. Based on the data of 1996 Chinese listed firms, this study investigates how the strength of Chinese firms' political connection with their home country government impacts the outcomes of their internationalization activities. These activities are classified into market exploration and technology acquisition. We establish an index to measure the firms' political connection strength and find that it exhibits a bimodal distribution, which indicates that some firms maintain a close relationship with the government, while the business activities of others are distant from the government. The strength of the political connection has different moderating effects on firms' internationalization processes when either the international market context or the firms' internationalization activities vary. A strong political connection is beneficial for firms to explore the markets and acquire beneficial technology from developed countries. Compared with its role in exploring international markets, political connection plays a more significant moderating role in augmenting the positive effect of international technology acquisition on firms' innovation capability. Therefore, Chinese firms may perform better in the internationalization process if they maintain a close relationship with the Chinese government, which engages in promoting the internationalization of domestic firms through an array of policies that may compensate for the firms' disadvantages. Our results show the mechanism through which emerging countries' governments use directives and incentives to facilitate the internationalization of domestic firms.

Factors Influencing Technology Transfer in Companies at Emerging Economies

“…To sum up, the results obtained in the study complement the latest results obtained by Park et al (2018), Kim et al (2019), Quinones et al (2019), and Zhang et al (2020) on the performance of new knowledge and technology acquisition and their implications for business management.…”

Drivers of social responsibility disclosure: the moderation of the president director's busyness and political connections

“…Zhang et al . (2020) found out that corporate political relations increase the likelihood for companies not to disclose any environmental information and decrease the likelihood for companies to refer to GRI's Sustainability Reporting Guidelines.…”

“…Political connections include formal and informal relationships between local officials and top company managers (Bertrand et al , 2018; Faccio, 2010). Zhang et al (2020) explain that a strong political relationship with the Chinese government will help realize two main internationalization interests: market exploration in developing countries and technology acquisition from developed countries. Voluntary disclosure can also be a political choice itself for certain political powers.…”

The Impact of Political Connection and Information Asymmetry on Investment Efficiency: Evidence from China

“…Other researchers have asserted that although frictions preventing firms from reaching optimal investment decisions exist in different forms, political connection is the most pronounced in China [13][14][15]. However, Zhang et al [16] argued that the government imposed on Chinese firms various political, economic, and social goals, thus weakening the firms' resource utilization efficiency.…”

“…The extant literature suggests that firms are eager to employ executives with political ties as chairman or chief executive officer (CEO) to enhance the firms' economic advantages [5,[15][16][17]. Further, political connections help private enterprises obtain bank loans and alleviate financial constraints, strengthen firms' resource-seeking abilities, and increase mergers and acquisitions [5,18,19].…”