Political connections and firm internationalisation

Lu, Xiaojing (2021) Political connections and firm internationalisation. PhD thesis, Birkbeck, University of London.

Abstract

Political connections (PCs) are firm senior managers’ boundary spanning linkages with political officers in governments and their constituent political institutions. They are believed to influence firm strategy and behaviour. This thesis consists of three papers that discuss how political connections influence firm internationalisation and contribute to knowledge about the topic in the following ways. Firstly, prior empirical studies provide incoherent arguments and indefinite conclusions about the PCs - internationalisation relationship and boundary conditions. To have a comprehensive understanding of this PCs - internationalisation relationship and be at the forefront of the research, the first paper of this thesis synthesises existing theoretical arguments about this relationship by drawing insights from internalisation theory. The author conducts a meta-analytic review of the relationship between PCs and firm internationalisation and the boundary conditions influencing their relationship. Based on a database encompassing 25,197 observations from 60 independent samples from 59 papers, the findings endorse the argument that generally, PCs have a positive impact on firm internationalisation. Specifically, PCs originated from the host countries have a greater impact on firm internationalisation than those from the home countries. Contextual and methodological contingencies like the institutional context (developed vs developing), data type (survey vs archival) and stage of foreign investment (pre vs post-investment) are tested. Secondly, the heterogeneity and complexity of PCs are not well considered in the existing international business research literature. Therefore, the second paper investigates the PCs-export relationship in a Chinese context where unique political-business relationships are essential in a market with heavy government intervention and a lack of formal institutions. Drawing on resource dependence theory, the author proposes that PCs alleviate firms’ resource dependence on their government during the institutional transition and generate comparative advantage in the domestic market. Using a sample of 2,411 firm-year observations of 709 firms between 2008-2013 from the China Stock Market and Accounting Research Database and the Annual Report of Industrial Enterprise Statistics, this study finds that CEO’s PCs negatively influence Chinese firms’ engagement in export. After further exploration of the boundary condition of the PC-export relationship, the author identifies that this negative impact is mainly caused by executive PCs rather than legislative PCs. The author also finds that the higher the level of CEOs’ PCs, the less likely Chinese private firms will engage in export. Thirdly, there is a dearth of research in the extant literature regarding how the threat of institutional distance is buffered or amplified by top management team (TMT) international backgrounds or experience, such as their home political connections, their international experience and the presence of expatriates in the TMT. Drawing on upper echelon theory and using a sample of 46,803 TMT members observations of 6,150 multinational subsidiaries in 72 host economies based on the combined dataset of Orbis from Bureau van Dijk and World Governance Indicators from World Bank, the third paper shows that the negative relationship between institutional distance and multinational subsidiary performance will be strengthened by an increase in expatriates in the TMT, but the strength of this negative relationship will be mitigated in proportion to the TMT’s international experience and political connections. Notably, the TMT’s international experience in weak-institution-markets has a more salient mitigating effect on the negative relationship than that in strong-institution markets. The author discusses the theoretical and managerial implications of these three studies and proposes directions for future research in the thesis.

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