Corporate Political Activity And Media Coverage Effects On Strategic Change And Firm Performance

Corporate Political Activity And Media Coverage Effects On

Strategic Change And Firm Performance

INTRODUCTION

Existing studies examining the relationship between corporate political activities and firm

performance come from various disciplines such as strategic management, economics, political

science, sociology and finance. Corporate political activities, defined as corporate attempts to

influence government policy in a way that favors the firm (Baysinger, 1984), are commonly used

by firms in various countries (Hillman, Keim, & Schuler, 2004). In the U.S., there is a rich

literature examining corporate political activities. Studies have shown that the majority (over

63%) of Washington lobbyists are hired by firms and trade associations (Baumgartner & Leech,

2001), showing the pervasive interest of businesses in influencing public policy. The dominant

view in management and political science literature is that a company’s corporate political

activities are positively associated with firm performance (Pfeffer & Salancik, 1978; Boyd, 1990;

Hillman, Keim, & Schuler, 2004). Such activities can directly increase firm performance by

influencing legislatures to pass laws that change market structures to a firm’s competitive

advantage

(Peltzman, 1976; Stigler, 1971), by getting government contracts (Blumentritt, 2003), by

obtaining licenses and permits to operate, and even by restraining the abilities of potential or

current competitors in the market. Corporate political activities can also indirectly lead to higher

firm performance by influencing public policy and creating an environment that favor its core

business, or by reinforcing social relationships between business executives and public officials,

thereby maintaining favorable business conditions (Clawson et al., 1998). Theories such as

resource dependence theory and industrial-organization economics support this view.

However, another research stream holds an opposite view; several recent empirical studies

propose that corporate political activities are negatively associated with financial performance

(Igan, Mishra, & Tressel, 2009; Aggarwal, Meschke, & Wang, 2012), and a firm’s political

contribution is negatively associated with market performance (Hadani et al., 2013). Despite

extensive research on both sides, scholars haven’t reached an agreement on this issue, and the

relationship between corporate political activities and firm performance remains complex and

unclear.

It is indisputable that firms are actively engaging in political activities not only in

Washington, but also globally, but most of the existing studies are U.S-centric or mainly focus on

Western countries, such as those in the European Union (Coen, 1997; Skippari, 2003), and Russia

(Kubicek, 1996). Few studies focus on Eastern countries like Japan (Angel, 2000; Broadbent,

2000) and South Korea (Kang, 2002), with even fewer focusing on China. Hillman and Keim

(1995) and North (1990) have proposed that the relationship between business and government,

more specifically politicians on the board of directors and firm performance, are likely to be

different in different institutional contexts. For example, in China, out of the 2,985 deputies in

the 10th National People’s Congress (2003-2008), 417 could be identified as business leaders of

companies, which means in the whole Congress, nearly 14% deputies were CEOs, CFOs, COOs

and general managers of companies.

The National People’s Congress (NPC) is the national legislature in China, with the ultimate

right to legislate, oversee government operations, and elect major government officers (Li &

Liang, 2015). Unlike other corporate political activities that “indirectly” influence public policy,

having a CEO in the Congress is the most effective and essential way to influence public policy

because in such a situation the business leader is simultaneously manager and policy maker.

Through legislation proposals, business leaders are able to propose nation-wide or region-wide

legislation to shape government regulations and produce a more favorable business environment

(Truex, 2014). According to the report of the 10th NPC, over 80% of the deputies’ proposals were

resolved in some way, and 50% resulted in policy improvement.

According to Forbes (2013), 71% of the top 500 richest Chinese business people have

political appointments. In contrast, in the U.S. 115th Congress (2017-2018), there were only 37

former CEOs in the House and 10 in the Senate (Manning, 2017). In the U.S., it is not

uncommon for current or former CEOs to be represented on presidential task forces or special

committees.

For example, in the G.W. Bush Administration, corporate executives had seats on the President’s

Energy Task Force and the Department of Commerce-led Advisory Committee on Trade Policy

Negotiations (Hillmann et al., 2004). Currently, however, there is no CEO on-the-job that is also

in either the House or the Senate (Manning, 2017).

The active participation of Chinese business leaders in political activities offers a dramatic

context in which to examine the relationship between a firm’s corporate political activities and its

performance. In China, the reforms and opening-up, the expanded institutional regulation and the

increase in the number of political interest groups have all stimulated corporate political activity,

especially in the past 20 years. As the role of the government and the scope of its regulatory

policies change over time, businesses must learn coping strategies for dealing with the

corresponding uncertainty in the system. In addition, given the unique political and economic

system of China, and the increasingly important political and economic roles that emerging

markets like China play in the world today, it is both important and interesting to explore firms’

political activities in the institutional context of China. By doing so, we can test current theories

and empirical findings from the Western context, expanding them into a totally different

institutional context. We can also gain a better understanding of the relationship between

business and government in China, which is in such a dramatic era of change.

Therefore, in this study, the relationship between corporate political activities and firm

performance will be explained through the lens of Chinese business leaders’ political

appointments, especially their legislation behavior in the Congress.

Further, we examine the relationship between having a business leader’s legislation

proposal(s) in the Congress and strategic change. Strategic change has been defined as the overall

change in a firm’s pattern of resource allocation in multiple key strategic dimensions (Finkelstein

& Hambrick, 1990; Carpenter, 2000), such as advertising intensity (advertising/sales), research

and development intensity (R&D/sales), plant and equipment newness (net P&E/gross P&E), non-

production overhead (selling, general, and administrative [SGA] expenses/sales), inventory levels

(inventories/sales) and financial leverage (debt/equity).

The reasons that we want to focus on the relationship between corporate political activity and

strategic change are as follows. First, this is the area that has received the least amount of attention

for at least two decades (Hillman et al., 2004). That is, companies’ efforts to better understand

internal procedures and routines related to effective implementation of corporate political activities

remain unclear. Second, timely strategic change is crucial as it reflects a company’s ability to

anticipate and respond to environmental change, which contains both opportunities and hazards.

According to Wiersema and Bantel (1992), possessing this ability is one of the most important

ways in which a company’s competitiveness and viability are ensured, but surprisingly, to our best

knowledge, there is no study examining the relationship between corporate political activity and

strategic change.

Last, we want to focus on “fame and fortune”. Media coverage of business leaders has

significantly increased in recent decades (Halff, 2013); CEOs in the Congress are “superstars”.

Recent empirical studies propose that media coverage of CEOs significantly increases firm value.

Nguyen (2015) has found that firms with the highest levels of CEO media coverage outperform

those with the lowest levels by 8% in abnormal stock returns. Russell Reynolds Associates (2003)

have surveyed institutional investors and have found that the presence of a “high-profile” CEO is

one of the factors influencing investment decisions. Hamilton and Zeckhauser (2004) have found

that as firm sales increase, the number of relevant articles in the New York Times increases, while

the overall percentage mentioning the CEO declines. However, earlier works such as that by Cutler

et al. (1989) examining the relationship between media coverage and movement of stock prices

find no evidence supporting the notion that media coverage could explain stock prices or aggregate

price movements. In other words, the media play on a small role, repeat only already-known news,

and do not convey useful information (Bendisch et al., 2013).

Despite the increasingly important role the media play in influencing business, scholars still

have not reached an agreement on this topic. Moreover, the relationship between a business

leader’s media coverage and a firm’s strategic change remains unclear.

This paper proceeds as follows. We first introduce the National People’s Congress of China,

its function and how CEOs and other business leader deputies are elected. Then we review the

existing theories and empirical studies examining the effects of business leaders’ legislation

behavior and media coverage on firm performance and strategic change. We then discuss our

study’s data and method. Lastly, we present our findings and conclude this study by explaining its

contribution to the literature.

Background information on Chinese business leaders’ political appointments

In this section, we describe the setup of the National People’s Congress of China (NPC), the

manner in which business leaders are appointed as deputies to the NPC and how they influence

public policy through legislation proposals.

The NPC is the national legislature of the People’s Republic of China. Under China’s current

Constitution, the NPC is structured as a unicameral legislature, a legislature that consists of only

one chamber or house. The NPC has the power to legislate and amend the Constitution if needed,

to oversee the operations of the government, to approve the Annual Report of Government Work,

and to elect the major officers of state, including the country’s President and the Premier of the

State Council.

There are People’s Congresses at five administrative levels: national, provincial, prefectural,

county and township. Representatives at the county level and below are elected directly by the

people, whereas the higher-level deputies are elected by the deputies of the congress directly

below them. In our sample, the NPC deputies, serving for a term of five years, were elected by

deputies serving at the provincial level. The whole NPC, which had 2,987 deputies in 2016,

meets once a year in Beijing for two to three weeks. Similar to the U.S. House of

Representatives, the NPC allocates seats to each province in proportion to its population, ranging

from 13 representatives for Taiwan to 175 representatives for Shandong.

The political appointment ratio of Chinese publicly listed private firms increased from around

22% in 1995 to 41% in 2012 (Li & Liang, 2015, see Figure 1). The ratio is defined as the number

of listed private firms whose CEOs or Chairs are People’s Congress or People’s Political

Consultative Conference (PPCC) members, divided by the total number of listed private firms.

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There are also criticisms that the NPC is a “rubber stamp”, by which is meant an institution

that by law has considerable power but in fact has very little power. This “rubber stamp” label

implies that the entity rarely or never disagrees with more powerful institutions. In China, the more

powerful institution is the Chinese Communist Party (CCP). Political scientists such as O’Brien

(1990) believe that by the time a bill is placed before the NPC, the major content has already been

decided by the CCP or the government and the NPC deputies are expected to simply just vote it

through; the more powerful government organ uses the NPC to endorse and formalize laws in order

to create the superficial appearance of legislative process. One piece of evidence raised in support

of the “rubber stamp” label regarding the NPC is that it has seldom, if not never, rejected a law

brought to it by the government.

However, the NPC is not completely without influence; on the contrary, its influence is

increasing. The reason we rarely see any laws rejected by the NPC is because the manner in which

deputies attempt to influence the policy process is non-confrontational. This is partially due to the

deputies’ Chinese cultural background. Chinese people rarely criticize others openly and directly.

Even if they do so, they have to do it in in a very polite way that involves specific expressions (i.e.,

mianzi, or “saving face” for oneself and for the person being criticized), especially as it relates to

one’s social standing, prestige and reputation.

As a pro-economic development regime, the Chinese state is ideologically oriented toward

business (Kennedy, 2005). The CCP has written in its Party Constitution that “development is the

first priority of our Party in governing and rejuvenating the country”, and that “we shall continue

to make economic development the central task and stick to the pursuit of comprehensive,

coordinated and sustainable development.”

Business development is central to accomplishing these Party goals; business often “educates”

government officials, helping them to see problems from a business perspective, and business

cooperates with the government to achieve outcomes that benefit the company, the government

and the country as a whole. Often with authoritative and first-hand knowledge of the economy and

industry, business leaders in the NPC have earned a “privileged position” at the policy-making

table.

THEORY AND HYPOTHESES

Business leaders’ proposal(s) and firm performance

Pfeffer and Salancik’s (1978) publication, The External Control of Organizations: A

Resource Dependence Perspective, is recognized as the pioneering and foundational work on

resource dependence theory, which proposes that resources are key to organizational success and

that access and control over resources is a basis of power: “The organization, through political

mechanisms, attempts to create for itself an environment that is better for its interest”, and

“organizations may use political means to alter the condition of the external economic

environment.” Therefore, business leaders in the NPC actively seek to create their environment

by trying to shape government regulations to produce a more favorable environment for their

firms.

However, we believe that scholars holding this view ignore the very critical fact that in the

NPC, business leaders’ proposals are mainly industry- or sector-specific laws. In other words,

business leaders are interested in policies that affect their own sector or the whole industry.

Business leaders almost never propose legislations that could only benefit their own firms, such

as obtaining licenses and permits to operate, getting loans etc. The obvious reason is that they do

not want to be considered “selfish”, since by definition they are the deputies of the people, not

their own companies. Also, in order for a proposal to be presented to and considered by the NPC,

a minimum number of 30 deputies are required to sign off on the proposal, which significantly

adds to the difficulty of proposing legislation that only benefits one company.

Evidence has shown that Chinese CEO and business leader deputies propose and advance

policies that favor their industries. For example, during the annual NPC conference in 2015, the

CEO of Tencent Technology, Ma Huateng, proposed motions regarding legislation on the Internet

and digital industry, Tencent’s industry. The CEO of Geely Holding Group, Li Shufu, proposed

motions on green energy automobiles, driverless cars and automatic driving at the NPC annual

conference in both 2016 and 2017. He also called for reforms of the taxi services in the country.

Geely is a Chinese multinational automotive manufacturing company whose main products are

automobiles, taxis, motorcycles, engines, and transmissions. It sells passenger cars under the

Geely and Volvo brands and taxis under the London Taxi brand. Although there is no information

revealed at the national level regarding the result of each individual proposal, we can observe

that the digital industry and the industry of electric and eco-friendly automobiles have received

substantial financial support from the government in recent years. The proposals by Mr. Ma and

Mr. Li thus benefit the industries they are in, not just Tencent and Geely.

Therefore, we believe that having proposals in the NPC will only lead to firm performance

conformity, that is, “typical performance” among peer firms.

Hypothesis 1: A business leader with NPC proposal(s) is positively associated with

performance conformity.

Business leaders’ proposal(s) and strategic change

Regarding proposed legislation, most draft laws circulate between the NPC, the State Council,

and relevant government ministries for months, some even for several years, before they are

finalized and made publicly available. The average time it takes for proposed legislation to be

finalized and made law is around 2 to 5 years, with very rare exceptions. This period of time is

extremely valuable to firms with their business leaders in the NPC because they can change their

business strategies and adjust their business practices based on their understanding of the

formulation and execution of future policy changes. This early access to important legislation

information provides these firms with a great “insider’s advantage”, which cannot be easily

achieved by non-NPC firms, or the “outsiders”.

Timely strategic change is crucial as it reflects a company’s ability to anticipate and respond

to environmental change, but such change could contain both opportunities and dangers. As the

legislation process is a long one that usually lasts years and involves a large degree of uncertainty,

business leaders who have proposals in the NPC know that change is coming but cannot be sure

when and to what extent. This uncertainty drives them to maintain the status quo, or as the old

Chinese saying goes: 以不变应万变 (“counter changes with changelessness”). Therefore, they

are less likely to engage in strategic change, at least during their congressional tenure.

Another relevant factor is called the “distraction effect”. The NPC deputies are all part-time

deputies and almost all of them have full-time jobs. The whole NPC only meets once a year, but it

is not the yearly two-week meeting that decides the fate of any particular legislation bill. Rather, it

is expected that any disagreements should be resolved ahead of time and consensus should be

reached behind closed doors months or even longer before the annual meeting convenes. NPC

deputies and government officials initiate direct contact long before any official policies are

adopted. Such exchanges can be initiated by either side during the proposition and consideration

of specific regulations and laws (Kennedy, 2005). In the case of economic- or business-related

legislation, the government may ask for a meeting regularly with business leader deputies from

certain industries, and in order to finalize proposals, business leaders can also invite government

officials to attend certain meetings of industry or business associations over policy issues. There

are also many other forms of direct interaction between deputies from industry and the government.

For example, the NPC often sends delegations to meet with local governments, scholars and

researchers, business associations, companies or even employees in various cities, to gain opinions

on certain legislation, or investigate policy issues. This study, research and investigation process

is a very critical regulatory duty of deputies. In 2016, more than 1,700 NPC deputies participated

in such activities, and the total number of legislation proposals in 2016 was 8,239 (Annual Report

of NPC Standing Committee, 2016). Ministries at the national and regional level can hold formal

or informal hearings to get opinions from industry, and industry leaders often invite deputies to

visit their companies or even participate in press conferences and new product announcements,

using these occasions to bring up development and policy issues. Contrary to popular belief,

deputies’ policy proposals calling for new legislation or revision of existing laws are taken quite

seriously by the CCP and the government, because deputies have been in their fields for a long

time, during which they have investigated and researched issues; legislation proposals are

considered first-hand resources, and therefore can significantly affect ultimate policy changes

(Jiang, 2003). According to Truex (2014), 77% of the deputy proposals are resolved in some way,

and 50% result in policy improvement.

The research and investigation process occupies a large amount of business deputies’ time and

therefore causes business leaders to be distracted and less likely to focus on strategic change.

Therefore, we propose that if a business leader has NPC proposal(s), his or her company is less

likely to engage in strategic change.

Hypothesis 2: A business leader with NPC proposal(s) is negatively associated with strategic

change.

The effects of business leaders’ media coverage on firm performance and strategic change

Ego identity theory (Erikson, 1968) is a major individual development theory. The theory

proposes that the ultimate purpose for individual development is self-fulfillment. Business leaders

in the NPC have dual roles, and some have even more. They represent both the NPC and their

companies, and most importantly, they represent themselves. Their multiple roles require them to

focus on fulfilling a deputy’s responsibilities, increasing firm performance and achieving personal

goals. According to this theory, business leaders seek political appointments mainly for self-

benefit. Before entering the NPC, business leaders focus on firm performance as it is a major and

critical component of their self-benefit. However, after achieving business success and entering

the NPC, business leaders move to a different life stage: from self-orientation to social orientation,

a life stage with the ultimate purpose of serving others and society.

In a recent study by Li and Liang (2015), those two scholars find that in China, the more socially

motivated successful individuals are, the more they feel obligated to contribute to the greater

good of society. Therefore, business leaders are more likely to spend resources and effort in

pursuing political appointments, such as NPC membership. Once the business leaders enter the

NPC, they have already proved that they were successful business leaders and they have

received recognition from the government, and the political activities offer less marginal

economic benefits. The next stage is self-fulfillment, which is a socially-oriented life stage.

Furthermore, studies have shown that CEOs with prominent media profiles are likely to

prioritize their personal achievement and own success above that of the company (Collins,

2001); this is especially the case for our “business stars” in the NPC.

Taking all of this together, we expect that a greater volume of business leaders’ media coverage

is likely to lead companies towards “typical performance”, or performance conformity, and that

media coverage is negatively associated with strategic change, mainly because when business

leaders move to the self-fulfillment life stage and are actively involved in political activities, they

may be inclined to maintain the status quo of business, as it has proved successful in the past.

Hypothesis 3: Business leaders’ media coverage is positively associated with performance

conformity.

Hypothesis 4: Business leaders’ media coverage is negatively associated with strategic

change.

Figure 2 captures the hypothesized relationships in this study.

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DATA AND METHODS

Sample

We analyzed a large firm-level dataset provided by the National Bureau of Statistics (NBS) of

China for the period 2002-2009, containing an average of 289,600 firms each year. NBS conducted

annual surveys of all state-owned enterprises and those non-state-owned enterprises with annual

sales above 5 million RMB, or 762,000 USD. The dataset covers 37 manufacturing industries all

over China. In 2004, for example, the firms in the dataset accounted for over 95% of China’s total

industrial value, produced over 90% of its output, generated 97.5% of its exports and employed

over 72% of its industrial workforce.

From the dataset, we generated a sample of 365 firms with business leaders in the National

People’s Congress, which account for 87.5% of the total firms that have business leaders in the

NPC. We define a business leader as a chairman, CEO, CFO, COO or a general manager of the

company.

The information reported to NBS should be quite reliable (Cai & Liu, 2009; Brandt et al.,

2012). There are several reasons why scholars believe this to be so. Firstly, the purpose of the

NBC survey is to calculate the country’s Gross Domestic Product (GDP). Every industrial

company is required by the government to file an annual report of basic company information,

production activities, accounting and financial information etc. Since 1995, NBS has established

strict collection, calculation and double-checking procedures regarding this dataset. NBS also

assigns every firm a legal identification number and tracks each company’s ownership changes.

Secondly, NBS’s policies clearly state that “the use of materials regarding units and individuals

collected in the economic census shall be strictly limited to the purpose of the economic census

and shall NOT be used by any unit as the basis for imposing penalties on respondents of the

economic census.” Therefore, companies do not have clear incentives or motivations to misreport

their information to NBS, because such information should not and cannot be used against them

by other government agencies such as the tax authorities. Thirdly, we understand that the

misreporting of statistical data from China is a concern, but most misreporting occurs with local

GDP data provided by local governments (Cai & Liu, 2009). This dataset, however, was directly

collected by the central NBS, and therefore we can reasonably believe that it is less likely to have

been manipulated by local governments.

Sometimes a firm receives a new ID as a result of restructuring, merger or acquisition. We

created numerical IDs to manually link firms over time, using information such as firm name,

address, industry, major product and establishment date to link them. Finally, we obtained a sample

of 2,212 observations of 365 companies.

Demographic information regarding the NPC deputies was collected from the official NPC

deputy database, which provides deputy information such as name, age and educational

background, as well as all other important background information. Additional information

regarding the deputies, such as tenure in the company, tenure in the Congress, and whether the

business leader was the company founder, was collected from deputies’ official company websites,

and also from Baidu Encyclopedia (www.baidu.com), which is the Chinese version of Wikipedia.

Similar to Wikipedia, Baidu has profiles of NPC deputies and major company leaders.

Measures

Performance conformity. According to Hiller and Hambrick (2005), conformity refers to the

extent to which a focal firm behaves like a “typical firm” in the industry or among its peers and

avoids deviation from industry standards or norms. To measure performance conformity, we

calculated a firm’s return on assets (ROA) and compared it with the average ROA of the sample.

If the performance of the focal firm is within 10% of the average of the all firms in the sample,

variable Performance conformity was coded “1”.

Strategic change. Following Finkelstein and Hambrick (1990) and Zhang (2010), we used five

key strategic dimensions to generate a composite measure of changes in allocation of resources:

R&D intensity, advertising intensity, nonproduction overhead expenses, inventory levels and

financial advantage.

Media coverage was measured as the natural logarithm of the number of media reports. We

used Python3 software to collect and content-analyze business leaders’ media reports from Sina

Finance. Sina (http://www.sina.com.cn) is the largest website in China and has over 100 million

registered users worldwide. Sina Finance is believed to be the most comprehensive website

containing company financial information, business leaders’ news reports and other business

related news and reports. The other reason we used Sina Finance to search business leaders’

media reports was that by doing so we could significantly reduce duplicated news reports and

therefore avoid double-counting of news. Unlike Google or Baidu Encyclopedia

(www.baidu.com), Sina Finance rarely has duplicated reports on business leaders. To quantify

business leaders’ exposure to media and in order to make sure the search results were accurate,

we did the following. We counted the number of articles that reported a business leader’s

activities. In the report, the role of a business leader could be a leader of a company, a deputy of

the NPC, or both. We used the following combinations to search the media: a business leader’s

full name and his or her company name; a business leader’s full name and the abbreviation of his

or her company name; a business leader’s full name and “NPC member” (ren da dai biao). The

time range was from 2002 to 2009: starting one year before their Congress membership started

and ending one year after their membership ended. Also, because the “key words” we searched

were in Chinese, we needed to encode the string of new features to “GB2312”, the code format in

“search.sina.com.cn”. Through Python3, we were able to run the codes and export the search

results to an excel sheet. We also manually cross checked at least half of the results and found

them to be very satisfactory.

Proposal was measured as a binary variable, coded “1” if a business leader in the observation

year submitted a legal proposal as the primary sponsor to the NPC and “0” if not.

To control for any confounding effects of business leaders’ personal characteristics, we also

controlled for their age, tenure, level of education, founder status, international experience,

status of being a former official and gender. Vast research has shown that those demographic

traits relate to business leaders’ cognition and influence firms’ decisions. Additionally, we also

included government ownership, coded as “1” if the government had any ownership of the focal

firm and “0” if otherwise.

Analysis and results

Given the unbalanced panel data, both fixed-effects and random-effects models were

considered. To decide between fixed or random effects, we ran a Hausman test (Hausman, 1978)

after regressing the dependent variables on all other variables, where the null hypothesis was that

the preferred model was the random-effects model and the alternative the fixed-effects model

(Greene, 2008). The Hausman test showed that there were no systematic differences of coefficients

between the fixed and random models. Therefore, random-effects models were appropriate for

testing all three hypotheses.

A Wald test showed the presence of heteroskedasticity after running simple OLS

regressions for all three dependent variables. Therefore, our analyses used robust standard errors

to correct for heteroskedasticity (Huber, 1972; White, 1982).

Table 1 shows the descriptive statistics including means, standard deviations and

correlations among the variables. The mean of the natural logarithm of media coverage was 2.171,

which was about 145 times the number of media reports in numeric terms. In any given year, about

4.4% of business leaders submitted at least one proposal to the NPC. The average age of business

leaders in our sample was about 53 years old, they had on average held the position for about 18

years, and on average had a college degree. Nearly 10% of them were former government officials,

45% of them had some international experience, and 8% of them were female. Among all firms,

about 10% were owned or partially owned by the government.

To assess the multicollinearity among the variables, we calculated variance inflation factors

(VIFs) after conducting a simple OLS regression for each of the dependent variables. For both

models, the mean of the VIFs and the VIF for each variable were below the conventional criteria

(VIF < 10) (O’Brien, 2007). Therefore, we included all variables in the model as there was no

indication of multicollinearity concerns.

As shown in Table 2, we developed eight sets of random-effects regression models. Models

1-4 are logit models where the dependent variable is performance conformity. Model 1 includes

only control variables (business leader and firm characteristics). Models 2-4 add the independent

variables to examine the effects of media coverage and proposal on performance conformity.

Similarly, Models 5-8 examine the effects of our independent variables on strategic change. Model

5 includes control variables only, and Models 6-8 include the independent variables.

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Insert Table 1 and Table 2 here

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H1 is not supported. As shown in Models 2 and 4 in Table 2, the coefficient for proposal was

not significant. In H2, we hypothesized a positive relationship between media coverage and

performance conformity. Models 3 and 4 examine this proposed relationship. We found that media

coverage was positively associated with firm performance conformity and that the coefficient for

media coverage was significant (p < .050), providing support for Hypothesis 2.

Both H3 and H4 are supported. As shown in Models 6-8, the coefficient was negative and

significant for both proposal (p < .050) and media coverage (p < .001), suggesting that business

leaders who submitted proposals to the NPC or received a high level of media coverage would

make fewer changes to their organizations.

CONCLUSION & DISCUSSION

We examined the intriguing phenomenon that an increasing number of Chinese business

leaders, both from state-owned and private-owned enterprises, are seeking political appointments

in the NPC. This study contributes to the literature on corporate political activity and firm

performance. This research helps us to better understand the consequences of Chinese business

leaders’ political appointments in the NPC, especially the effects of their legislation behaviors on

firm performance and strategic change.

By collecting and analyzing a sample of 365 business leaders in the NPC, we were able to

apply and expand Western individual development theories, such as Ego identity theory (Erikson,

1968), to an ancient Eastern culture and the unique institutional context of China.

We also contributed to the literature on business leaders’ media coverage and its consequences

on firm performance and strategic change.

Future research could explore the following questions: What are the antecedents of Chinese

business leaders’ political appointments? We understand that a business leader in the Congress

has reach a new life stage and firm performance may not be their top priority, but what exactly

drives business leaders to seek political appointments? Also, can we apply findings regarding the

relationship between corporate political activities and firm performance in Western countries

such as the U.S. and the U.K. to China (i.e., creating a matching sample of firms with/without

CEOs in the Congress, and investigating the effects of congressional membership on firm

performance)?

Furthermore, industry-level variables have received little attention. Research has shown that

some firms in heavily regulated industries are more critically affected by public policies than

others (Lang & Lockhart, 1990). This suggests that although business leaders’ political

appointments may be beneficial for all firms, these linkages are even more important for those in

heavily regulated industries. So the question becomes: what kind of firms and industries would

benefit more from such political appointments?

Other industry-level variables, such as industry concentration and competitors’ political

activities, could also impact firm’s corporate political activities. Concentration within an industry

generally refers to the degree to which a small number of firms provide a major portion of the

industry’s total production. If concentration is low, then the industry is considered to be

competitive. If the concentration is high, then the industry will be viewed as oligopolistic or

monopolistic. In a highly concentrated industry, because of the fewer total number of firms and the

presence of only a few dominant firms, firms should be more motivated to seek political attachment

and gain influence on public policies since the political payoffs are much higher than those for

firms in fragmented and less-concentrated industries. In addition, competitors’ political activities

could also influence a business leader’s motivation to seek political appointment. Schuler et al.

(2002) have found that in the U.S., firm-level political activities are positively associated with

overall industry-level political activities. Hersch and McDougall (2000) report that American and

Japanese automakers regularly match each other’s political donations. Skippari (2003) examines

how firms in Finland both competed and cooperated with rivals to gain favorable political

outcomes, which also suggests that intra-industry dynamics play a very important role in

influencing corporate political activities. In China, we expect to find similar phenomena. For

example, in the IT industry, almost all of the CEOs from major dominant firms have political

appointments.

Meanwhile, future research could also examine relationship between location and the

antecedents and consequences of political appointment. That is, are firms from certain parts of

China more willing to build such connections with the government? Are companies in certain

districts greater beneficiaries of political appointments? What are the differences across different

districts?

Lastly, it would be very interesting to investigate the impact of different Congress levels on

the relationship between political appointment and firm performance. There are five

administrative levels of Congress in China (national, provincial, prefectural, county and

township), and it is relatively difficult and takes a longer time for business leaders to propose

legislation at the national level. Would it be relatively easier to propose similar legislation at the

provincial or county level? These questions have important practical implications and are left for

future research for answer.

Figure 1

Political Appointment Ratios in Chinese Publicly Listed Private Firms, 1995-2012

Political Appointment Ratio = Number of listed private firms whose CEOs or Chairs were PC or PPCC members /

Total number of listed private firms

Data from Li & Liang (2015)

199519961997199819992000200120022003200420052006200720082009201020112012

FIGURE 2

Theoretical Model

Business leader’s media

coverage

Business leader’s

proposal(s)

Performance conformity

Strategic change

Table 1. Descriptive Statistics

Mean

S.D.

1. Performance Conformity

0.031

0.174

2. Strategic Change

0.835

1.764

-0.0145

3. Media Coverage

2.171

1.169

0.0482*

-0.166***

4. Proposal

0.044

0.205

-0.0135

-0.0351

0.0559**

5. Founder

0.335

0.472

-0.00243

0.0119

0.0796***

0.0727***

6. Age

52.682

7.379

0.0489*

-0.163***

-0.0404

-0.0460*

-0.107***

7. Tenure

18.612

9.865

0.0278

-0.117***

0.0701***

-0.0525*

-0.292***

0.394***

8. Education Level

2.125

0.845

-0.0416*

0.0156

0.137***

-0.0650**

-0.128***

-0.267***

0.0893***

9. Government Ownership

0.107

0.309

0.00418

0.00562

-0.0049

-0.0392

-0.206***

0.0860***

0.0730***

0.107***

10. Former Official

0.120

0.325

-0.00312

-0.00803

-0.0211

-0.0525*

-0.123***

0.0463*

-0.154***

0.0134

-0.0217

11. International Experience

0.454

0.498

0.0935***

0.0129

0.192***

0.0653**

0.0781***

0.0139

-0.00141

0.0937***

-0.0361

0.0733***

12. Female

0.081

0.273

0.00319

-0.0141

-0.0361

0.0953***

0.0899***

0.0133

0.0195

-0.108***

-0.0395

-0.109***

-0.00233

n = 2212. † p < 0.1, * p < 0.05, ** p < 0.01, *** p < 0.001 (two-tailed tests).

Table 2. Regression Results

Dep. = Performance Conformity

Dep. = Strategic Change

Model 1

Model 2

Model 3

Model 4

Model 5

Model 6

Model 7

Model 8

Proposal

-0.592

-0.603

-4.864*

-3.974*

(0.76)

(1.89)

(1.85)

Media Coverage

0.459**

0.460**

-4.434***

-4.406***

(0.17)

(0.40)

Founder

-0.044

-0.037

-0.054

-0.049

-2.111†

-2.092†

-1.307

-1.297

(0.32)

(0.33)

(1.14)

(1.16)

Age

0.028

0.027

0.025

0.024

-0.612***

-0.623***

-0.624***

-0.632***

(0.02)

(0.07)

(0.08)

Tenure

0.005

0.004

0.007

0.006

-0.231***

-0.238***

-0.256***

-0.262***

(0.02)

(0.06)

Education Level

-0.185

-0.192

-0.259

-0.267

-1.479*

-1.570*

-0.469

-0.548

(0.18)

(0.19)

(0.62)

(0.64)

Government Owned

0.106

0.101

0.135

0.132

1.708

1.682

1.553

1.532

(0.44)

(1.52)

(1.51)

(1.52)

Former Official

0.154

0.141

0.246

0.230

-1.533

-1.696

-1.803

-1.935

(0.44)

(0.45)

(1.60)

(1.61)

(1.63)

International Experience

1.101***

1.109***

1.015***

1.020***

0.736

0.854

3.033**

3.115**

(0.30)

(1.00)

(1.03)

(1.04)

Female

0.008

0.052

0.070

0.120

-1.290

-0.964

-2.022

-1.751

(0.50)

(0.51)

(0.52)

(1.87)

(1.88)

(1.90)

(1.91)

Constant

-5.642***

-5.551***

-7.474***

-7.370***

49.162***

50.209***

56.586***

57.380***

(1.33)

(1.49)

(4.30)

(4.32)

(4.35)

(4.37)

n = 2212. † p < 0.1, * p < 0.05, ** p < 0.01, *** p < 0.001 (two-tailed tests).

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Essay 2: Chinese CEOs in the National People’s Congress (NPC):

A Moderated Mediation Framework

INTRODUCTION

Research over the past two decades has yielded substantial evidence indicating that a

close relationship exists between corporate political strategies and firm performance (Getz,

1993; Hillman, 1999; Hillman, 2005; Sun et al., 2012). It has been proposed in some studies

that such relationship is positive (Truex, 2014; Zheng et al., 2015), and the core assumption

is that improving firm performance indicates that firms implement different corporate

political strategies (North, 1990; Lux et al., 2011). Meanwhile, it is also proposed in existing

studies that such relationship was negative (Hadani and Schuler, 2013; Igan, Mishra, and

Tressel, 2009; Aggarwal et al., 2012; Boubakri et al., 2008). In the literature it remains unclear

how effectively and under what conditions corporate political strategies increase or decrease

firm performance. One particular reason is scholars’ lack of understanding of the mechanisms

in this relationship (Truex, 2014). Through this study we address this gap and contribute to

the literature by opening the “black box”, that is, the various mediators between corporate

political strategies and firm performance. Particularly, we are interested in CEOs’ personal

service in political entities, and how such service or political appointment influences firm

performance, especially return on assets (ROA) and market share. As one important

component of corporate political strategies, CEOs’ personal service in political entities has

gained substantial attention (Getz 1993; Hillman, 1999; Hillman, 2005). Hillman (1999) used

the event-study methodology to study business leader’s personal service, especially having a

firm representative serve in the federal cabinet and elected to the U.S. House of

Representatives and Senate. The findings suggest that such personal service positively affects

firm value. About a decade ago, scholars began to switch the focus from developed countries

to emerging economies (Zheng et al., 2015).

It is indisputable that firms are actively engaging in political activities not only in

Washington, but also globally. However, most existing studies are U.S.-centric or mainly

focus on Western countries, such as those in the European Union (Skippari, 2003), and Russia

(Kubicek, 1996). Few studies focus on Eastern countries like Japan (Broadbent, 2000) and

South Korea (Kang, 2002), with even fewer focusing on China. Hillman and Keim (1995),

and North (1990) proposed that the relationship between business and government is likely

to be different in different institutional contexts. In this study, we also tested and expanded

current theories and empirical findings from Western research to a totally different

institutional context—China. By doing so, we could gain a better understanding of the

relationship between business and government, especially in China, a country in such a

dramatic era of change.

According to Forbes (2013), 71% of the top 500 richest Chinese business people have

political appointments. Out of the 2,985 deputies in the 10th National People’s Congress

(NPC, 2003-2008), 417 could be identified as business leaders of companies. The active

participation of Chinese business leaders in political activities offers a dramatic context in

which to examine the relationship between a firm’s corporate political strategies and firm

performance. In China, the economic reform, the expanded institutional regulation and the

increase in the number of political interest groups, have all stimulated corporate political

strategy, especially in the past two decades. As the role of the government and the scope of

its regulatory policies change over time, businesses must learn coping strategies for dealing

with the corresponding uncertainty in the system. In addition, given China’s unique political

and economic system and the increasingly important political and economic roles that

emerging markets like China play in the world today, it is both important and interesting to

explore firms’ political activities in the Chinese institutional context.

The structure of this paper is as follows: we begin by looking at the theoretical

background and existing literature on the relationship between corporate political strategies

and firm performance, especially CEOs’ personal service in political entities and its influence

on firm performance. Then, we introduce the National People’s Congress of China and CEO

deputies in the Congress. Next, we formulate our research hypotheses and describe the data

collection process and the methods we used. Finally, we present our findings and conclude

with a discussion of implications for future research.

THEORY AND HYPOTHESES DEVELOPMENT

Corporate political strategies and firm performance

Corporate political strategies, or corporate political activities (CPAs), are relatively

widespread (Faccio, 2006; Sun et al., 2012). CPA is an important component of firm

nonmarket strategy (Lux et al., 2011). Such strategies are designed and implemented to

manage the institutional or societal context of economic competition, and to create a more

favorable environment for the firm. Getz (1993) grouped corporate political strategies into

seven broad categories: lobbying, reporting research results, reporting research results,

testifying, legal action, service by corporate leaders and constituency building. The

underlying assumption is that firms engage in CPAs to improve firm performance (North,

1990), which is also the dominant view in management and political science literature. This

view is supported in existing research, through which evidence is shown that corporate

political strategies directly increase firm performance by influencing legislatures to pass laws

that change market structures to a firm’s competitive advantage (Peltzman, 1976; Stigler,

1971) by getting government contracts (Blumentritt, 2003), by obtaining licenses and permits

to operate, and even by restraining the abilities of potential or current competitors in the

market. Corporate political strategies can also indirectly lead to higher firm performance by

influencing public policy and creating an environment that favors a firm’s core business, or

by reinforcing social relationships between business executives and public officials, thereby

maintaining favorable business conditions (Clawson et al., 1998). Ferguson and Voth (2008)

examined Germany before World War II. They collected monthly stock prices from official

publications of the Berlin stock exchange, and their results showed that politically affiliated

firms outperformed the stock market by 5% to 8%, and account for a large part of the market’s

rise. They attributed the reasons to the willingness of investors to pay higher prices for

affiliated firms, and investors recognized the special value that politically connected firms

had.

Meyer and Rowan’s pioneering work (1977) of contemporary institutional research,

Institutionalized organizations: Formal structure as myth and ceremony, provided a

theoretical perspective that explains why firms implement corporate political strategies. A

fundamental question that defines institutional theory is: why do firms look alike? The

answer is the different institutional forces that push firms in industries toward similar, or

isomorphic, practices (DiMaggio & Powell, 1983). In response, many firms follow the

industry leader and adopt certain practices. Hillman (2003) examined the determinants of

political strategies used by U.S. multinationals in Europe and found that institutional

variables explain the choice of political strategy, including the approach, participation and

strategy. In their meta-analysis study, Lux and colleagues (2011) suggested that institutional

forces could shape corporate political strategies. The research analyzed 78 studies with a

sample size of 72,265 and found that corporate political strategies are related to

performance and that firms are “forced” to engage in political activities if they want to

compete with firms that already engage in such activities.

Personal services as corporate political strategy

Corporate political strategies are largely comprised of Political Action Committee (PAC)

contribution and lobbying (Lux et al., 2011). Scholars from different disciplines agreed that

lobbying was the primary political strategy, and PAC contribution was the complementary

action (Kaiser, 2009), and perhaps this is the reason that attention has focused heavily on these

two political strategies. However, as one important component of corporate political strategies

(Getz, 1993; Hillman, 1999; Hillman, 2005), personal service by CEOs in the government

has been ignored for a long time, especially in those studies that focused on the U.S..

In his study, Getz (1993) proposed that corporate leaders’ personal service in official

government posts provides potential political benefits for the corporation. In the U.S.,

executives may serve at the federal cabinet level, in executive and administrative departments,

or as consultants or members of special committees. In Table 1, we summarized research in

the past two decades on the antecedents and consequences of CEOs’ political appointment.

--------------------------------------- Insert Table 1 Here

---------------------------------------

Hillman and colleagues (1999) found that firm performance would be positively affected

if a link were established between a firm and the government through personal service. In the

study, they used Scholes-Williams’ event-study methodology and limited personal service to

political appointments at federal cabinet level and elections to the Senate and U.S. House of

Representatives. Zheng and colleagues (2015) found 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.

What about China?

As we have discussed earlier, 417 out of the 2,985 deputies in the 10th National People’s

Congress (2003-2008) could be identified as business leaders of companies, which means in

the whole Congress, nearly 14% of deputies were CEOs, CFOs, COOs and general

managers of companies. In contrast, this number is zero in the U.S. In other words, there is

no CEO on-the-job that is also in either the House or the Senate (Manning, 2017).

The National People’s Congress is the national legislature of the People’s Republic of

China. Under China’s current Constitution, the NPC is structured as a unicameral

legislature, a legislature that consists of only one chamber or house. The NPC has the power

to legislate and amend the Constitution if needed, to oversee the operations of the

government, to approve the Annual Report of Government Work, and to elect the major

officers of state, including the country’s President and the Premier of the State Council.

Unlike other corporate political strategies that “indirectly” influence public policy, having a

CEO in the Congress is the most effective way to influence public policy because in such a

situation the business leader is simultaneously manager and policymaker. Through

legislation proposals, business leaders are able to propose nation-wide or region-wide

legislation to shape government regulations and produce a more favorable business

environment (Truex, 2014). A seat in the Congress also allows firms to access a valued set

of resources, such as bank loans, government subsidies, and so on, that indirectly help

improving their performance and expand market share. We will elaborate on NPC firms’

access to resources later in the paper.

Before an NPC firm formally “uses” its influence, the NPC membership itself already

sends a strong and clear signal to the outside world that the firm is currently well-run, has

achieved a certain level of status and received recognition from the government in the form

of political appointment and access to other political connections that also come with

membership in the NPC (Sun et al., 2011; Yang et al., 2017). Truex (2014) studied the

relationship between NPC membership announcements and stock market reaction. He

observed the average stock prices for NPC firms and non-NPC firms over a short time

window starting a few weeks before NPC membership was announced and ending after the

announcement. After conducting a formal weighted fixed effect analysis, he found that NPC

membership brings an increase in share price ranging from three to four RMB (Chinese

currency, equal to 0.43-0.58 USD), depending on the balancing model and window of time

studied.

Although substantial evidence indicates corporate political strategy, especially CEO’s

personal service in political entities, could lead to higher firm performance, firms eventually

have to come back to market and face market competition. Tian and Deng (2007) proposed

that relative market share in a firm’s industry will influence variance of political strategy

choice. Schuler (1996) found that market changes are positively associated with firms’

political involvement, especially competitive pressures from foreign imports, or import

penetration, and declining consumption in the domestic market is positively associated with

a firm’s political involvement. Both scenarios suggest firms’ attempts to respond to market

changes. However, to our best knowledge, there is no existing study that empirically

examines the direct impact of political strategy on market share. Deng and colleagues

(2010) suggest that the purpose of firms’ engaging in political strategy is to shape a better

external environment for firms’ market strategy and strengthen firms’ competitive position

in a given industry. Therefore we argue that NPC membership could help expand firm’s

market share.

Taking all of this into account, we propose:

Hypothesis 1: NPC membership is positively associated with firm performance.

Hypothesis 2: NPC membership is positively associated with market share.

Access to Resources

Network strategy helps an organization overcome the lack of valuable resources that it

needs in order to grow (Zhang & Zhang, 2006). These resources include soft resources (such

as policy preference, etc.) and hard resources (such as material resources, bank loans,

government subsidies, etc.). Studies have shown that in China scarce resources are allocated

according to guanxi rather than based on bureaucratic rules (Park and Luo, 2001). Guanxi,

pronounced gwan-see, translates into “social connection”, or “relationship”, and is the

informal connections essential to gaining approval or access to just about everything in China

(Shaw & Meier, 1994): resources, valuable information, and licenses or permits to operate in

certain industries. The two Chinese characters guan and xi literally translate into “a gate” or

“a door” and “to connect” or “to attach”. According to Park and Luo (2001), guanxi is a

cultural characteristic that has strong implications for interpersonal and inter-organizational

dynamics in Chinese society. It refers to the concept of drawing on a web of connections to

secure favors in personal and organizational relations. There is a rich literature (e.g. Buttery

& Leung, 1998) in which it is proposed that cultivating personal connections and establishing

a personal guanxi network is the very first thing that foreigners seeking to do business in

China should do. CEOs’ political appointment or attachment with government officials is

considered an important type of guanxi (Park & Luo, 2001). Building such political guanxi

with government (Li & Liang, 2015) could lead to access, or lower cost to access specific

resources that may be leveraged to influence firm performance. Substantial studies have been

undertaken to examine Chinese CEOs’ attachment with government officials at various levels

of governmental, bureaucratic, and regulatory agencies and their access to various types of

resources (Luo & Chen, 1997; Peng & Luo, 2000). Pearce and Robinson (2000) proposed that

guanxi could increase sales, help avoid fines or taxes, and maintain a competitive advantage.

Although guanxi itself cannot be bought or sold at a certain price, it can provide individuals

and companies with the opportunity to acquire valuable resources and win them competitive

advantage over others (Braendle et al., 2005). Khwaja and Mian (2005) found similar

preferential treatment in Pakistan. They analyzed a loan-level data set of more than 90,000

companies that represents the universe of corporate lending in Pakistan. The results showed

that politically connected firms receive substantial preferential treatment by being provided

with greater access to credit. Such firms receive 45% larger loans than non-politically

connected firms. Claessens and colleagues (2007) found that Brazilian firms with larger

campaign contribution substantially increased their bank leverage relative to a control group

after each election, showing their preferential access to bank financing. Similar evidence for

lending patterns is also found in India (Cole and Duflo, 2004) and Thailand (Charumilind et

al., 2006). Yu and Pan (2008) found that Chinese firms with political connections get more

bank loans and longer loan maturity than those without political relations. Wang and Ni (2012)

analyzed the data of Chinese-listed private firms from 2006 to 2009, and found that political

connection is negatively associated with the cost of bank loans.

Regarding another critical resource, government subsidy, there are several reasons why

governments grant such aid: to support certain industries or firms, to support certain

developing regions, to encourage R&D, to help domestic firms compete in the global market,

and so on. U.S. state governments have been awarding financial subsidies to individual

companies, example such as Exxon Mobil in Texas, Amazon and Boeing in Washington, and

most recently the 4.1 billion US dollars from the state of Wisconsin to Foxconn. The question

was and will always be: who gets subsidies, or who has priority? In a recent study, Aobdia

and colleagues (2018) analyzed publicly traded companies in the U.S. that received a subsidy

from at least one state during 2000 through 2014, and found that political contributions

increase both the likelihood that a company is awarded a state subsidy and the dollar value of

subsidy awarded. Just like the state governments of the U.S., the Chinese government has a

long history of awarding financial subsidies to individual corporations, state owned or

privately owned. For example, through government subsidies, the manufacturing capacity of

China’s solar panel industry grew tenfold, leading to a vast global oversupply (Haley & Haley,

2013). A surge in exports of Chinese panels depressed world prices by 75%. In 2012, China’s

top six solar companies had debt ratios of over 80%. The subsidies took the form of free or

low-cost loans; artificially cheap raw materials, components, energy, and land; and support

for R&D and technology acquisitions. Zhang and colleagues (2014) analyzed firm-level data

related to manufacturing companies listed in China. The results show that state owned firms

can obtain more subsidies than private owned enterprises because of their unique connection

with government.

Taking all of this into account, we propose:

Hypothesis 3: NPC membership is negatively associated with bank loan costs.

Hypothesis 4: NPC membership is positively associated with government subsidy.

Labor efficiency

Sullivan and Sheffrin (2003) define economic efficiency as a concept of resource

utilization, a concept that refers to the production of goods and services from a certain quantity

of resources. If we apply this concept to labor resources, then labor efficiency increases as the

labor-to-revenue ratio decreases. Labor-to-revenue ratio shows how much a company spends

on its employees to generate revenue. Lower ratio is generally good for business as it indicates

a higher level of utilization and productivity of labor resources (Stuebs & Sun, 2010).

There has been a growing interest in the degree that human resource systems influence

labor efficiency or productivity (Datta et al., 2005). Delery and Shaw (2001) proposed two

features that distinguish Strategic Human Resource Management (SHRM) from traditional

HR management: (1) SHRM focuses on the strategic role that HR plays in increasing

organizational productivity and firm performance; (2) SHRM studies have focused on

organizational-level analysis. Jackson, Schuler and Jiang (2014) define SHRM scholarship as

the study of HRM systems (and/or subsystems) and their interrelationships with other

elements comprising an organizational system, including the organization’s external and

internal environments, the multiple players who enact HRM systems, and the multiple

stakeholders who evaluate the organization’s effectiveness and determine its long-term

survival. Such definition reminds us of the important interrelationship between an

organization’s external environment and HRM system. Collins and Clark (2003) examined

the relationships between a set of HR practices, top management teams’ (TMT) external and

internal social networks, and firm performance. They found that TMT’s external and internal

social networks are positively associated with firm performance, and such social networks

mediate the relationship between HR practice and firm performance. In their study,

government agencies are critical components of firms’ external environment. To our Chinese

CEOs, the Congress is a great platform that increases their social networks in size, range, and

strength. Such large, broad and strong-tied networks can in turn influence HR practices, either

the “best practices” proposed by the universalistic perspective, or the strategic contingency

proposed by the contingency perspective (Delery & Doty, 1996).

NPC membership can also increase labor productivity and brings labor efficiency

benefits. Stuebs and Sun (2010) found that business reputation is positively associated with

improved labor efficiency and labor productivity. As we have discussed earlier, a seat in the

Congress sends a strong and clear signal to the outside world that the firm is currently well-

run, has achieved a certain level of status and has special guanxi with government. Such status

or reputation could attract and motivate employees. Good employees are attracted to NPC

firms and they may be willing to accept less compensation to exchange for other benefits the

employment opportunity brings. Employees’ competing for careers with NPC firms creates a

larger labor supply which in turn, decreases compensation. In addition, employee productivity

increases as employees are motivated to work harder for reputable NPC firms. Such

motivation could be intrinsic, including pride, enjoyment, accomplishment, and skill

development, which are not necessarily associated with monetary rewards. To sum up, labor

inefficiency is expected to decrease as labor costs go down and labor productivity goes up,

therefore we propose a negative relationship between NPC membership and labor

inefficiency.

Hypothesis 5: NPC membership is negatively associated with labor inefficiency.

Strategic Change

The reason we focus on strategic change is because it has been proven to be a critical

antecedent of CEOs’ influence on firm performance (Wiersema & Bantel, 1992; Zhang &

Rajagopalan, 2010). Le and Kroll (2017) proposed a positive relationship between CEOs’

international experience and firm performance, both directly and mediated through the greater

strategic change fostered by these CEOs. In management literature, strategic change has been

defined as the overall change in a firm’s pattern of resource allocation in multiple key strategic

dimensions (Finkelstein & Hambrick, 1990; Zhang & Rajagopalan, 2010): R&D intensity,

advertising intensity, nonproduction overhead expenses, inventory levels and financial

advantage. Following existing research, we define strategic change as the change over time

of a firm’s pattern of resource allocation in multiple key strategic dimensions that goes beyond

industry-wide changes in those dimensions.

Timely strategic change is crucial as it reflects a company’s ability to anticipate and

respond to environmental change, but such change could contain both opportunities and

dangers. Changing firm strategy involves great risk, especially in the cases when established

ways of conducting business are abandoned, or current patterns of resource allocation are

changed, because in those cases, payoffs are not always guaranteed. Such risks are even

greater for CEO deputies in the Congress as almost all of the firms in the Congress are

successful firms. In order to be elected as deputies in the Congress, CEOs must prove that

they have been successful business leaders. For them, there is no need to change either the

overall firm strategy or the pattern of resource allocation, as they already have a well-

established track record and their strategy worked fairly well in the past. This is especially

true for state-owned firms. We will elaborate on the impact of ownership in later sections.

Also, the uncertainty associated with political appointment increases dramatically as CEOs

join in the politicians’ club. Uncertainty could be regarding the future of the business, or the

future of a CEO’s personal career. Such uncertainty drives CEOs to maintain the status quo,

or as the old Chinese saying goes: “meet all changes with constancy”.

Another reason why CEOs are less likely to engage in strategic change is because of the

totally new career that Congress membership brings. Being a Congress member is very

different from being a business manager. This is a completely new identity and a totally

different career path. Even if NPC deputies are all part-time based and the whole NPC meets

only once during the two-week annual meeting, deputies are not just working for two weeks

during the whole year. For example, proposing legislation bills, the most important duty of

deputies, cannot be done in just two weeks. It is not the two-week yearly meeting that decides

the fate of any particular legislation bill. On the contrary, it is expected that any disagreements

should be resolved ahead of time and consensus should be reached behind closed doors,

months or even longer before the annual meeting convenes. NPC deputies and government

officials initiate direct contact long before any official policies are adopted. There are also

many other forms of required interaction between deputies from industry and the government.

For example, the NPC often sends delegations to meet with local governments, scholars and

researchers, business associations, companies or even employees in various cities, to gain

opinions on certain legislation, or to investigate policy issues. The research and investigation

are critical regulatory duties of deputies. In 2016, more than 1,700

NPC deputies participated in such activities, and the total number of legislation proposals in

2016 was 8,239 (Annual Report of NPC Standing Committee, 2016). Such research and

investigation process could occupy a large amount of business deputies’ time and therefore

cause business leaders to be distracted and less likely to focus on strategic change. We also

call this “distraction effect”.

Hypothesis 6: NPC membership is negatively associated with strategic change.

Mediating effects

In the previous sections, we have argued that NPC membership has a positive effect on

both ROA and market share. We have also reasoned that NPC membership has a positive

impact on government subsidy, and negative impact on loan cost, labor inefficiency and

strategic change. We also posit that lower bank costs could help firms increase performance

and expand market share. Jin and colleagues (2018) used firm-level data related to listed

manufacturing companies in China from 2011 to 2015 and found that receiving government

subsidies improves firm performance. Zhang et al. (2013) found that government subsidies,

in both long and short terms, have significant positive effects on the financial performance of

wind energy manufacturing companies. One early study by Brander and Spencer (1985)

proposed that government subsidies, especially export subsidies, could be attractive policy

tools because they improve the relative position of a domestic firm in non-cooperative

rivalries with foreign firms, enabling it to expand its market share and improve its financial

performance. In recent studies, such as that of Buts and Jegers (2013), a sample of 13,000

Belgian firms was analyzed and a significant and positive influence of fixed asset subsidies

on market shares was found. Regarding the relationship between strategic change and firm

performance and market share, there has been ongoing debate in existing studies for decades.

One effect is adaptive and another is disruptive. In the adaptive view, which is also the

dominant view, strategic change can have positive effects on both firm performance and

market share because strategic change represents the firm’s bold thinking and novel strategic

initiatives (Zhang & Rajagopalan, 2010), and therefore it may allow the firm to align with the

external environment and increase performance and expand market share. Regarding the

relationships between labor efficiency and firm performance and market share, positive links

have been established in various studies, specifically that labor efficiency can increase

organizational outcomes such as firm performance and market share.

Hypothesis 7: Bank loan costs mediate the positive relationship between NPC membership

and ROA.

Hypothesis 8: Bank loan costs mediate the positive relationship between NPC membership

and market share.

Hypothesis 9: Government subsidy mediates the positive relationship between NPC

membership and ROA.

Hypothesis 10: Government subsidy mediates the positive relationship between NPC

membership and market share.

Hypothesis 11: Labor inefficiency mediates the positive relationship between NPC

membership and ROA.

Hypothesis 12: Labor inefficiency mediates the positive relationship between NPC

membership and market share.

Hypothesis 13: Strategic change mediates the positive relationship between NPC membership

and ROA.

Hypothesis 14: Strategic change mediates the positive relationship between NPC membership

and market share.

The moderating role of firm ownership

In 2014, 19 out of 20 of the largest enterprises in China were state-controlled or state-

owned enterprises (SOEs). Chinese industry includes a total of 17,830 state-owned or state-

controlled enterprises, which is more than half the total number of all enterprises in China

(National Bureau of Statistics of China, 2014). Among all SOEs, near 20% are directly

controlled by the central government. All SOEs are supervised by China’s State Asset

Supervision and Administration Commission (SASAC), whose main job is performing

investors’ responsibilities and supervising and managing the state-owned assets of the

enterprises. The SASAC reports to the State Council, which puts SOEs under direct

supervision of the central government. In other words, SOEs and governments (whether

central or local governments), have such unique “blood ties”, which give SOEs advantages

that private firms seldom enjoy. The influence of Chinese firms’ ownership on bank loan

costs is an issue of great interest and complexity. In China, lenders are exposed to lower

failure and bankruptcy risks when they issue loans to SOEs (Luo et al., 2018). This is the

reason banks prefer to lend more money to SOEs at lower costs rather than give loans to

private firms, and, moreover, almost all of the commercial banks in China are state-owned.

Transferring money from banks to SOEs is similar to transferring money from the

government’s left pocket to the right. Unlike SOEs, private firms normally don’t enjoy this

preferential treatment. Therefore Congress membership is more “meaningful” to private

firms because with it, private firms join the club that they were previously excluded from, a

club whose members enjoy many advantages, including lower loan costs.

Hypothesis 15: Firm ownership moderates the negative relationship between NPC

membership and bank loan cost, resulting in such relationship being experienced more

strongly by private firms.

The same logic applies to the case of government subsidy. O’Connor et al. (2006) found

that on average Chinese SOEs receive more subsidies than private firms. They further

argued that the reason is that the government wants to use subsidies to pursue sociopolitical

objectives such as creating job opportunities and stabilizing local economies. If a firm is an

SOE and its CEO is a Congress member, such sociopolitical objectives are more likely to be

set for this firm, and government subsidies are more likely to be given to this type of firm.

Hypothesis 16: Firm ownership moderates the positive relationship between NPC

membership and government subsidy, resulting in such relationship being experienced more

strongly by SOEs.

We have reasoned that NPC membership leads to less strategic change in general. This is

especially true for SOEs. If a firm is owned by the central government, its CEO is appointed

by the State Asset Supervision and Administration Commission. In other words, the CEO is

appointed by the government and reports to the government. He or she is more of a politician

than a businessperson. There is no need for such CEOs to change the pattern of resources

allocation since they have well-established track records and their strategy worked fairly well

in the past, this also being the reason they were appointed in the first place. However, CEOs

from private firms are quite different. The National People’s Congress provides them with a

great platform from which to get easy access to resources and information, resources they are

not used to having and information that would not have been shared with them previously.

For example, the average time for a legislation proposal to be finalized and made law is around

two to five years, with very rare exceptions. This period of time is extremely valuable to

private firms in the Congress because they can change their business strategies and adjust

their business practices based on their understanding of the formulation and execution of

future policy change. This early access to important legislation information provides private

firms a great “insider’s advantage”, which cannot be easily achieved by non-NPC firms, or

“outsiders”. Since SOEs are “insiders” from their first day of operation, such insider’s

advantage is more salient for private firms.

Hypothesis 17: Firm ownership moderates the negative relationship between NPC

membership and strategic change, resulting in such relationship being positive for private

firms.

For decades, both scholars and government have been criticizing labor inefficiency and

poor HR management practices of Chinese SOEs. The “cradle to grave socialism”, lifetime

employment and heavy burden social welfare all put SOEs in a disadvantaged position when

competing against private firms. Since 1994, the central government urgently called for

reforms and reorganization of SOEs. Increasing labor efficiency is one of the objectives.

Compared to private firms, SOEs have a higher level of labor inefficiency and we expect

SOEs that have CEOs in the NPC to experience stronger negative relationship between NPC

membership and labor inefficiency. In other words, they increase labor efficiency to a larger

extent than private firms do.

Hypothesis 18: Firm ownership moderates the negative relationship between NPC

membership and labor inefficiency, resulting in such relationship being experienced more

strongly by SOEs.

Figure 1 presents our theoretical framework.

-------------------------------------- Insert Figure 1

Here

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METHODS

Data collection

We analyzed a large firm-level dataset provided by the National Bureau of Statistics

(NBS) of China for the period 2002-2013. NBS conducted annual surveys of all state-owned

enterprises and those private enterprises with annual sales above 5 million RMB, or 762,000

USD. The dataset covers 37 manufacturing industries all over China. The dataset ranges from

181,542 firms in 2002 to 345,101 firms in 2013, with an average of 321,722 firms per year

throughout the sample period. In 2004, for example, the dataset contains 279,092 firms which

accounted for over 95% of China’s total industrial value, produced over 90% of its output,

generated 97.5% of its exports and employed over 72% of its industrial workforce.

Excluding the missing data, we generated a sample of 366 firms with business leaders in

the National People’s Congress, which account for 88% of the total firms that have business

leaders in the NPC. We define a business leader as a chairman, CEO, CFO, COO or a general

manager of the company. To link a business leader to the firm, we also collected their

demographic information from the official NPC deputy database, which provides deputy

information such as name, age and educational background, as well as all other important

background information. We also crosschecked company websites and Baidu Encyclopedia

(www.baidu.com) to make sure of information accuracy.

In order to make a valid comparison between firms whose CEOs were in the NPC and

those whose CEOs weren’t, we created a matching sample set using the Coarsened Exact

Matching (CEM) method. CEM is a monotonic imbalance reducing matching method which

means that the balance between the treated and control groups is determined by ex ante user

choice rather than discovered through the usual laborious process of checking after the fact,

tweaking the method, and repeatedly re-estimating (Blackwell et al., 2010). CEM also assures

that adjusting the imbalance on one variable has no effect on the maximum imbalance of any

other. We used year, firm size, location and industry as criteria to create a matching sample of

44,894 firms that have no CEOs in the NPC.

Measures

Return on assets (ROA). ROA is defined as net income divided by total assets. After we

calculated the ratios, we accounted for industry effects by subtracting the industry median

changes in these ratios.

Market share. To calculate a firm’s market share, we looked at the ratio of the firm’s total

revenue divided by the total revenue of the top 20 firms in the industry.

NPC. If a focal firm has a business leader in the 10th National People’s Congress

(2003-2008), the variable NPC was coded “1”, otherwise it was coded “0”.

Bank loan costs. To calculate bank loan costs, we looked at the ratio of total interest a

focal firm paid for long-term debt divided by the amount of total debt (Francis et al., 2013).

Government subsidy. We used the ratio of total government subsidy a focal firm received

divided by the total subsidy the whole industry received. We also accounted for industry

effects by subtracting the industry median changes in these ratios.

Labor inefficiency. To calculate labor inefficiency, we first added the total compensation

and benefits a focal firm paid to its employees, and subtracted the total from the industry

median. We then divided this number by the total revenue to get the labor-to-revenue-ratio.

Strategic change. Following Finkelstein and Hambrick (1990), and Zhang and

Rajagopalan (2010), we used five key strategic dimensions to generate a composite measure

of changes in allocation of resources: advertising intensity (advertising/sales), research and

development intensity (R&D/sales), fixed assets intensity (fixed assets/total assets), non-

production overheads (selling, general, and administrative expenses/sales), inventory levels

(inventories/sales) and financial leverage (debt/equity). We took into account the differences

between a firm’s current pattern of resource allocation and its own pattern in the previous

year. We also compared such differences to the industry’s central tendency.

We accounted for exogenous influences on ROA, market share and bank loans by

including relevant control variables: firm size, rule of law, industry concentration and

government market control. It has been show in vast amounts of research that these

variables relate to corporate political strategy, firm performance and market share. Take

industry concentration for example, Schuler and colleagues (2002) propose that firms in

concentrated industries are more motivated to implement political strategies as the political

payoffs are higher for those firms. The authors further suggest that large firms also have

stronger incentives to engage in political strategy as large firms are affected by the

government and public policy changes to a greater extent than smaller firms.

ANALYSIS AND RESULTS

We test the proposed moderated mediation framework in several ways. We first follow

the causal steps approach proposed by Baron and Kenny (1986), and then we use normal

theory based framework (Preacher et al., 2007) for testing moderated mediation. Pre-

regression analysis indicates that there are no serious violations of the major regression

assumptions. Table 2 shows the descriptive statistics, including means, standard deviations

and correlations among the variables.

-------------------------------------- Insert Table 2 Here

--------------------------------------

As shown in Table 3, we first perform multiple random-effects regression models to check if

the framework complies with Baron and Kenny’s (1986) requirements. According to their

approach, establishing a mediation effect requires first, that the independent variable

significantly affects the dependent variable; second, that the independent variable

significantly affects the mediator; and third, when independent variable and mediator are

added to the model simultaneously, the mediator significantly accounts for variability in the

dependent variable and the effect of the independent variable on the dependent variable is

significantly reduced.

Model 1 shows the effects of control variables on ROA and Model 2 adds the main effects

of the moderating variable—firm ownership. Model 3 adds the main effect of independent

variable NPC membership on ROA and the results show that NPC membership has a positive

and statistically significant effect on ROA (β = 7.45, p < 0.001), so Hypothesis

1 is supported. Models 4 to 6 examine the effects of NPC membership on market share. Model

4 shows the control variables only and Model 5 adds the main effects of the moderating

variable. Model 6 shows that NPC membership has a positive and statistically significant

effect on market share (β = 1.33, p < 0.001). Hypothesis 2 is also supported. These results

satisfy the first requirement of Baron and Kenny’s (1986) approach. We then develop Models

7 to 10 to test the effects of NPC membership on mediators. NPC membership has a positive

and statistically significant effect on government subsidy (β = 0.42, p < 0.05), and a negative

and statistically significant effect on the cost of loans (β = -20.04, p < 0.001). However, the

effects of NPC membership on strategic change and labor inefficiency are not statistically

significant. Therefore, Hypotheses 3 and 4 are supported, but Hypotheses 5 and 6 are not.

Next, we examine the effects of mediators on dependent variables. Following existing studies

(Kenny, 2009), we add mediators to the regression models separately when they have high

correlations. Models 11 to 14 show that government subsidy has a positive and statistically

significant effect on ROA (β = 0.33, p < 0.001), strategic change has a positive and statistically

significant effect on ROA (β = 0.05, p < 0.001), and labor inefficiency has a negative and

statistically significant effect on ROA (β = -0.10, p < 0.001). However, the effect of loan cost

is not significant (p > 0.10). Models 15 to 18 show that government subsidy has a positive

and statistically significant effect on market share (β = 0.09, p < 0.001), and labor inefficiency

has a negative and statistically significant effect on market share (β = -0.002, p < 0.001).

However, the effects of loan cost and strategic change on market share are not significant (p

> 0.10). These findings suggest that government subsidy mediates the relationship between

NPC membership and ROA, and the relationship between NPC membership and market

share, therefore Hypotheses 9 and 10 are supported.

-------------------------------------- Insert Table 3 Here

--------------------------------------

We then test the moderation hypotheses in Models 19 to 22. Model 21 suggests a positive

and significant effect of the interaction between NPC membership and firm ownership on

strategic change (β = 10.56, p < 0.01). Hypothesis 17 is therefore supported. Model 22 shows

a positive and significant effect of the interaction between NPC membership and firm

ownership on labor inefficiency (β = 9.37, p < 0.05). Hypothesis 18 is therefore supported.

However, the interaction between NPC membership and firm ownership does not

significantly affect loan cost and government subsidy. Figure 2 shows the statistically

significant interaction effects.

-------------------------------------- Insert Figure 2

Here

--------------------------------------

To further explore how the indirect effects of NPC membership on ROA and market share

differ depending on firm ownership, we follow Preacher and colleagues’ (2007) normal theory

based theoretical framework for moderated mediation. To compute the conditional indirect

effects, we calculate regression coefficients from two different sets of models: one set of

models with mediators as the response variables and another set of models with the dependent

variables as the response variables. Conditional indirect effects are obtained by multiplying

coefficients from the models along with the values of the moderator. Table 4 presents the

conditional indirect effects of NPC membership on ROA (Table 5 for market share) for private

and state-owned firms. Both provide 95% confidence level intervals for these effects. These

findings are in line with our previous random-effects regression analysis.

-------------------------------------- Insert Table 4 Here

--------------------------------------

Insert Table 5 Here

--------------------------------------

Discussion and conclusion

The purpose of this study is to investigate the effects of NPC membership on return on

assets (ROA) and market share, and examine various mediators among these relationships.

The results suggested that NPC membership has positive effects on ROA and market share,

also government subsidy mediates the positive effects NPC membership have on ROA and

market share, respectively. Furthermore, NPC membership is positively associated with

government subsidy and negatively associated with bank loan costs. When adding the

interaction effects of firm ownership, the results showed that private firms experience a

positive relationship between NPC membership and strategic change, and state-owned firms

have a stronger negative relationship between NPC membership and labor inefficiency.

Our study offers a number of contributions to the growing literature of corporate political

strategy. First, to our best knowledge, this study is the first one to open up the black box, that

is, the various mediators between corporate political strategy and firm performance. Lacking

of understanding of the mechanisms in this relationship is the major reason that it still remains

unclear how effectively and under what conditions that corporate political strategies increase

firm performance (Truex, 2014). Second, we developed a theoretical framework and found

empirical evidence suggesting that NPC membership is positively associated with firm

performance and market share. Our study supported the hypotheses proposed by various

scholars (North, 1990; Lux et al., 2011). Third, by introducing a moderated mediation

framework, we provided insights into the interaction effects of NPC membership and firm

ownership on various mediators, and their influence on firm performance and market share

eventually. These relationships have not been established in previous research.

Future research could further investigate other underlying mechanisms and a more

comprehensive analysis is needed to consider both how and when corporate political strategy

could improve firm performance. Meanwhile, scholars have been focusing on the

consequences of corporate political strategy, little attention has been paid to the antecedents

of political strategy, especially CEO’s personal service in political entities. So what leads to

the Congress membership? What kinds of firms are likely to get the membership? What kinds

of business leaders are more likely to be elected or re-elected and stay in the Congress for a

long time? Also industry-level variables need to be thoroughly analyzed. Research has shown

that firms in heavily regulated industries are more critically affected by public policies than

others (Lang & Lockhart, 1990), therefore firms in such industries are more interested in

political strategy. Other industry-level variables, such as industry growth, industry

concentration and competitors’ political strategy, could also have impact on firm’s

engagement and choice of various corporate political strategies. Take the “control variable”-

industry concentration for example: concentration within an industry generally refers to the

degree to which a small number of firms provide a major portion of the industry's total

production. If concentration is low, then the industry is considered to be competitive. If the

concentration is high, then the industry will be viewed as oligopolistic or monopolistic. In a

high concentrated industry, because of the fewer total number of firms and only a few

dominant firms, firms should be more motivated to seek political attachment and gain

influence on public policies since the political payoffs are much higher than that in a

fragmented and lower concentrated industry. Also the focal firm’s position in the industry and

competitors’ political strategy could also influence firm or a CEO’s motivation to engagement

in political strategy. Schuler and colleagues (2002) found that in the U.S., firm-level political

activities are positively associated with overall industry-level political activities. Hersch and

McDougall (2000) report that US and Japanese automakers regularly match each other’s

political donations. Skippari (2003) examines how firms in Finland both competed and

cooperated with rivals to gain favorable political outcomes, which also suggests that intra-

industry dynamics play a very important role. In China, we are expecting a similar

phenomenon. In the IT industry, for example, almost all of the CEOs from major dominant

firms are members of NPC or other political organizations.

Meanwhile, future research could also examine the location differences in the

antecedents and consequences of CEO’s political appointment. That is, are firms from

certain provinces more willing to build such connections with government? Do companies

from certain districts benefit more (or less) from political appointments? What are the

differences across different locations?

Lastly, it will be very interesting to explore the impact of different Congress levels on

the relationship between CEO’s political appointment and firm performance. We now know

there are five administrative levels of Congress in China: national, provincial, prefectural,

county, and township. Will it be relatively easier to seek appointment at the provincial or

county level? As long as the firm’s business is regional, it can still benefit from such

legislation changes. These questions have important practical implications and are left for

future research.

Table

Summary

Research

the

Antecedents

and

Consequences

CEO'

Political

Appointment

Antecedents/

rimary

Data/

Level

; ‘

Author(s

Year

Journal

Count

Main

findings

(s)

Consequence

Methad

Analysis

Hillman

al.

1999

Strategic

Consequences

Scholes-

Williams

Firm

When

link

established

between

firm

and

the

government

through

personal

Management

Journal

event-study

method

service,

firm

performance

will

positively

affected

Peng

Luo

2000

Academy

Consequences

Individual

China

Managers

micro

interpersonal

ties

with

government

officials

help

improve

macro

ManagementJournal

organizational

performance

Agrawal

2001

The

Journal

Law

Cone

‘siti

Regression

analysis

Individual

Directors

with

political

experience

and

directors

with

law

degrees

are

important

Knoeber

and

Economics

nea

archival

data

/firm

the

boards

firms

for

which

politics

matters

: .

Politicians

the

board

directors

are

positively

associated

with

firm

financial

Journal

Regression

analysis

;

: é : 3 :

Hillman

2005

Consequences

;

Firm

performance.

Firms

heavily

regulated

industries

will

have

greater

number

Management

archival

data

: : ‘ A

politicians

their

boards

than

firms

less

regulated

industries.

Faccio

2006

The

American

Consequences

Regression

analysis

Finn

comnrtion

Appointments

politicians

corporate

boards

has

price

effect;

but

firm

value

Economic

Review

event study

increases

when

businessperson

enters

politics

Li&

Zhang

2007

Strategic

Consequences

Regression

analysis

Individual

China

Managers

Political

networking

will

positively

new

venture

performance

Management

Journal

survey

transition

economy

Goldman

Review

Regression

analysis

;

Political

connections

have

pervasive

impact

the

value

public

corporations

even

al.

2009

Financial

Studies

CO™S©dueNces

archival

data

ene

within

the

confine

the

strong

legal

system

the

U.S.

Journal

Antecedents/

Individual

eae

Lux

al.

2011

Management

Consequences

Meta-analysis

/firm

All

Corporate

political

activies

positively

firm

performance

Regression

analysis

: ,

Business

ties

have

stronger

positive

effect

firm

performance

than

political

ties,

eee

—

archival

data

—_

_aen

and

both

effects

depend

institutional

and market

environments.

Hadani

Strategic

Regression

analysis

‘

Having

former

public

officials

serve

firm's

board

directors

negatively

2013

Consequences

Firm

3 Q :

Schuler

Management

Journal

archival

data

associated

with

corporate

financial

peformance

seat

the

NPC

worth

additional

1.5

percentage

points

Truex

2014

nineteen

Political

Consequences

Regression

analysis

Firm

China

returns

and

a 3

percentage

point

boost

operating

profit

margin

given

Science

Review

archival

data

year.

Academy

Individual

Political

ties

remain

important

because

firms

continue

depend on

the

government

for

Shi

al.

2014

Management

Consequences

Perspective

China

critical

information

and

resources,

despite

the

advancements

the

marketization

Perspectives

process.

‘

;

The

“proself”

and

“prosocial”

motives

for

seeking

political

egression

analysis

: ; : : :

‘

Academy

—

connections

will

strengthen

the

relationship

between

private

firm

Liang

2015

Antecedents

survey

and

Individual

China

Sia

: :

;

ManagementJournal

adohival

deka

entrepreneurs’

business

success

and

their

intention

and

attainment

seeking

political

appointment.

‘

Political

ties

can

improve

both

firm

survival

(labeled

“buffering”)

and

performance

Strategic

Regression

analysis

‘ :

sncsiga

com

Zheng

al.

2015

Consequences

Firm China

(labeled

“enabling”),

with

weaker

firms

Management

Journal

archival

data

;

gaining

from

buffering

and

stronger

firms

gaining

from

enabling.

‘ 3 a 5

Appointing

individuals

the

board

directors

who

have

served

some

political

Academy

Regression

analysis

Individual

: :

ans

Sun

al.

2016

Consequences

China

capacity

will

increase

the

severity

blockholder

rent

Management

Journal

archival

data

/firm

appropriation

Individual

government

work

experience,

political

membership,

family

connections,

Yang

al.

2018

Business

Horizons

Antecedents

Perspective

pie

China

shared

social

identities

and

instrumental

exchange

with

government

officials

will

help

build

political

ties in

China.

Figure 1 Theoretical framework

Table 3 Results of Regression Analysis

Table 3 Results of Regression Analysis (Continued)

Model

ROA

Market Market Market

Market

inaneoe

Subsidy

Strategic

Labor

share share

Change

inefficiency

Firm

size

-1.72°** -1.67°** -1.80°**

-1.18"

O77

0.56°**

0.56***

0.67***

4.85°**

025"

~zAZ

-7.84°""

(0.30) (0.43) (0.48) (0.59) (0.02)

(0.01)

(0.84) (0.01) (0.12) (0.21)

Rule

of law

-0.67*** -0.67°**

-0.28**

ooo

-0.02**

-0.01

-0.02**

-0.03

-0.04°"* -0.80°**

-0.73**

(0.15)

(0.10)

(0.20)

(0.01)

0.00 0.00

(0.01)

(0.45) (0.01) (0.05) (0.25)

Concentration

10.38°**

10.72°**

11.05°*°

12.90°*°

35.95***

3:03"

2.88°** 3.70°**

-5.80

291°"

9:25"""

20.65***

(1.56) (1.34) (1.62) (1.35) (0.23) (0.16) (0.21)

(0.19)

(2.98) (0.17) (0.76) (1.74)

Market

control

17.39°**

14.67°** 12.09°** 13.60°**

-1.88°"* -1.22°"°

-1.44°""°

-1.50°**

-8.25**

-1.41°"* -9.54°"*

-51.26***

(2.35) (2.22) (2.68)

(2.24)

(0.19) (0.18) (0.22)

(0.19)

(3.11)

(0.15) (1.20) (2.75)

Congress

membership

7.87°**

7.36°"*

732"

6.60°*

1.51°**

1.38°°*

1.61°** 1.58°**

-17.86***

1.15

-6.98"*

-10.53*

(1.61) (1.73) (1.78)

(2.09)

(0.32)

(0.28)

(0.26)

(0.32)

(3.95) (0.65) (2.49) (4.17)

Ownership

(private

firms)

13:35*""

13.60°**

11.60°**

13.66°**

0.14°

0.03

-0.01

0.08

-0.46°** -7.63***

-35.87°**

(1.24) (1.14) (1.45) (1.01) (0.06) (0.06) (0.06)

(0.07)

(2.23) (0.09) (0.94) (1.52)

Loan

cost

-6.3e-04

6.6e-5

4.4e-4

4.97e-5

Subsidy

033°"

0.09°**

(0.04) (0.01)

Strategic

Change

0.05***

-1.44e-4

(0.01)

3.04¢-4

Labor

inefficiency

-0.10°"*

-1.9e-3"**

0.00

9.04e-5

Congress

membership

Private

-2.80

-0.93

10.56°*

9.37°

(4.76) (0.70) (3.79) (4.55)

Constant

22.88°**

22.28°*

20.97°

45.46°"°

-6.96""* -4.32°"° -4.32°""

-5.35***

-82.84°"*

-2.08°"*

33.96°**

150.82°**

(6.28) (7.39) (8.91)

(9.19)

(0.46) (0.38) (0.40)

(0.47)

(16.68)

(0.25) (3.03) (6.78)

dummies

significant

4639

120f30

0f 30

240f30

22 of

30.»

270f30

240f

of 30

lOofll

Hof

163,558

351,198 305,667

216,984

163,578

351,254 305,667

216,984

163,578

351,292

305,667

216,984

R-sq

within/between/overall

.O1/

O1/ O1/

.02/

.05/

.07/

.04/

.05/ .00/

O1/

.09/

.03/

.02/.02

.02/.01 .00/.01

.06/.04 .24/.24

.30/.25

.25/.22

.26/.23

.02/.00 .08/.04 .03/.07

.06/.05

0.05,

0.01,

0.001

Figure 2 Plots of interaction effects

NPC=0

NPC=1

State owned

Private

100

110

120

130

140

150

160

NPC=0

NPC=1

State owned

Private

Corporate Political Activity And Media Coverage Effects On Strategic Change And Firm Performance

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