This dissertation consists of two related essays on political embeddedness and tries to advance the political economy literature by examining the effectiveness of private firms’ political embeddedness and tackling the internal mechanisms through which political embeddedness influences corporate financial performance and innovation performance. The dissertation examines two important questions: 1) at the individual level, how would entrepreneur owners’ political embeddedness affect corporate financial performance; and 2) at the top management team level, how would political embeddedness of top managers influence firm innovation for private firms. I address these issues in two separate essays and use different samples of private firms in China to test my propositions, including...[ Read more ]

This dissertation consists of two related essays on political embeddedness and tries to advance the political economy literature by examining the effectiveness of private firms’ political embeddedness and tackling the internal mechanisms through which political embeddedness influences corporate financial performance and innovation performance. The dissertation examines two important questions: 1) at the individual level, how would entrepreneur owners’ political embeddedness affect corporate financial performance; and 2) at the top management team level, how would political embeddedness of top managers influence firm innovation for private firms. I address these issues in two separate essays and use different samples of private firms in China to test my propositions, including both the survey data on Chinese private firms in 1999 and in 2009 and archival data on listed firms in China during 2008-2012.

Essay one investigates the relationship between entrepreneur owners’ political embeddedness and corporate financial performance. Based on the political economy literature and resource-based view, I addressed that political embeddedness would generate better firm performance for private firms with more intangible resources because those firms are more effective in utilizing the potential resources provided by political embeddedness due to the resource complementarity effect. In addition, the positive joint effect of political embeddedness and intangible resources increases as the market becomes more developed since the enlarged market opportunities amplify the room for firms to realize the value of resource combination between government-controlled resources and firms’ intangible resources.

Essay two intends to dwell deeper into the influences of bureaucratic embeddedness by examining its disparate effects on two types of firm innovation: incremental innovation and radical innovation. Investigation in a panel of small private listed firms in China from 2008 to 2012 suggests that top managers’ bureaucratic embeddedness propels private firms to engage more in incremental innovation and less in radical innovation. Moreover, the effects of bureaucratic embeddedness on firm innovation are contingent on firm slack, foreign ownership and provincial state power.