Portfolios of Political Ties and Business Group Strategy in Emerging Economies: Evidence from Taiwan

Administrative Science Quarterly, Forthcoming

68 Pages Posted: 11 Feb 2014

See all articles by Hongjin Zhu

Hongjin Zhu

McMaster University

Chi-Nien Chung

National University of Singapore (NUS)

Date Written: February 8, 2014

Abstract

This study examines how political ties with rival political parties can affect a firm’s strategic decisions. Focusing on a firm’s portfolio of ties in addition to dyadic ties, we offer a novel contingency model that specifies how the influence of political ties on strategy varies across different forms of government in democratic emerging economies. We propose that when political parties differ substantially in competitive status (i.e., under united government), a diverse portfolio could induce the dominant political party to use punitive tactics toward the focal firm and make it difficult to achieve strategic goals. However, when political parties have a similar competitive status (i.e., under divided government), a diverse portfolio could benefit the firm by producing tertius gaudens advantages and political flexibility. Such a portfolio effect of political ties tends to be mitigated by the firm’s internal resources and capabilities. An investigation of how the political ties maintained by Taiwanese business groups affected unrelated diversification from 1998 through 2006 offers an initial attempt to reveal the role of ties to competing political parties in shaping firm strategy and highlights the trade-offs that politically connected firms confront when they exploit opportunities and mitigate risks arising from underdeveloped political and market institutions.

Keywords: portfolios of political ties, political parties, unrelated diversification, democratic emerging economies

Suggested Citation

Zhu, Hongjin and Chung, Chi-Nien, Portfolios of Political Ties and Business Group Strategy in Emerging Economies: Evidence from Taiwan (February 8, 2014). Administrative Science Quarterly, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2393774

Hongjin Zhu

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Chi-Nien Chung (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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