The Dynamics of Political Embeddedness in China

Forthcoming in the Administrative Science Quarterly

53 Pages Posted: 16 Mar 2012 Last revised: 3 May 2016

See all articles by Heather Haveman

Heather Haveman

University of California, Berkeley

Nan Jia

University of Southern California - Marshall School of Business

Jing Shi

Macquarie University

Yongxiang Wang

University of Southern California - Marshall School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 3, 2016

Abstract

Economic transitions from state planning and redistribution to market exchange create many businesses opportunities. But such transitions also create great uncertainty because many interdependent factors – modes of exchange, types of products, and forms of organizations – are in flux. Uncertainty is even greater when political institutions remain authoritarian because then rule of law is weak and state bureaucrats retain considerable power over the economy. In such contexts, firms can reduce uncertainty by developing relationships with state bureaucrats, which help firms learn how state bureaucracies operate and engender trust between firms and bureaucrats. Together, knowledge and trust stabilize firms’ operations and help persuade bureaucrats to lighten regulatory burdens, grant access to state-controlled resources, and improve oversight. Therefore, in authoritarian regimes, as economic transitions proceed and uncertainty increases, business-state ties increasingly improve firm performance. We test this argument by studying China, which saw economic transition but persistent authoritarianism. We also investigate two likely contingencies (industry and firm size) and two important causal mechanisms (access to bank loans and protection from related-party loans). Empirical analysis supports most predictions, demonstrating the importance of dynamic analysis: the value of business-state relations varies over time, depending on the trajectory of both economic and political institutions.

Keywords: political connection, firm value, market transition, political reform

JEL Classification: G32, G34, G38

Suggested Citation

Haveman, Heather and Jia, Nan and Shi, Jing and Wang, Yongxiang, The Dynamics of Political Embeddedness in China (May 3, 2016). Forthcoming in the Administrative Science Quarterly, Available at SSRN: https://ssrn.com/abstract=2021690 or http://dx.doi.org/10.2139/ssrn.2021690

Heather Haveman

University of California, Berkeley ( email )

Nan Jia

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Jing Shi (Contact Author)

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Yongxiang Wang

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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