Political Tie Heterogeneity and the Impact of Adverse Shocks on Firm Value

28 Pages Posted: 4 Nov 2015

See all articles by Pei Sun

Pei Sun

Fudan University

Kamel Mellahi

The University of Warwick

Mike Wright

Imperial College London

Haoping Xu

Fudan University

Date Written: December 2015

Abstract

Past research has recognized the contingent value of corporate political ties but largely neglects their heterogeneity. Drawing on the political embeddedness perspective and literature on emerging economy political institutions, we develop hypotheses regarding how political networks comprising managerial and government ownership ties may have different valuation effects in the face of adverse political shocks. Examining stock market responses to an unanticipated, high‐profile political event in China, we find a negative valuation effect of managerial ties to municipal government, but an insignificant effect of government ownership ties. Further, companies combining managerial and ownership ties experienced less post‐shock reduction in market value than those holding only managerial political ties. These findings shed light on the values of different configurations of corporate political ties and inform firms of potential ways to manage ubiquitous political hazards in emerging economies.

Keywords: China, emerging economies, network embeddedness, political risk, political tie, tie heterogeneity

Suggested Citation

Sun, Pei and Mellahi, Kamel and Wright, Mike and Xu, Haoping, Political Tie Heterogeneity and the Impact of Adverse Shocks on Firm Value (December 2015). Journal of Management Studies, Vol. 52, Issue 8, pp. 1036-1063, 2015. Available at SSRN: https://ssrn.com/abstract=2685956 or http://dx.doi.org/10.1111/joms.12165

Pei Sun (Contact Author)

Fudan University ( email )

600 Guoquan Rd
Shanghai, 200433
China

Kamel Mellahi

The University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Mike Wright

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Haoping Xu

Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China

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