Do Political Ties Facilitate Operational Efficiency? A Contingent Political Embeddedness Perspective

Abstract

Although the significance of relational ties with supply chain partners to firms' operations management has been frequently studied, it is unclear how political ties, which represent another form of relational ties that is especially important in emerging economies, relate to operational efficiency. Drawing on the political embeddedness perspective, we propose a negative association between political ties and operational efficiency and examine how this association is moderated by environmental and firm-level factors. Using panel data of listed private firms in China, we show that political ties are negatively correlated with operational efficiency. In addition, this negative relationship is stronger when firms operate in regions with less developed factor markets and in highly competitive industries. However, the negative relationship is weaker for firms with high levels of foreign shareholding and customer concentration. These findings caution against the downsides of political ties for operations management and highlight strategies for reducing their negative effect.