Entrepreneurial founder's social ties, institutions, and firm's productivity: Evidences from China's newly listed firms

Abstract

Social ties, as informal institutions, contribute to firms’ performance in emerging economies. Formal market-supporting institutions in emerging economies are in general less developed, social ties cultivated by entrepreneurs thus serve as substitutes for formal institutional support. However, the role of social ties as informal institutions and interactions between social ties and market-supporting institutions are yet to be fully explored. Using the sample of 428 newly listed firms on the Growth Enterprise Market of Shenzhen Stock Exchange of China between 2009 and 2016, this paper examines the interplays among the entrepreneurial founder's political ties and managerial ties, marketization, and firm's productivity, measured by firm-level total factor productivity. Our findings indicate that the entrepreneurial founder's managerial ties enhance firm productivity whilst political ties reduce productivity. We also find that marketization positively moderates the effects of the entrepreneurial founder's political and managerial ties on productivity. Our findings demonstrate the strategic importance of the informal institutions and contribute to an improved understanding of the complementary effects between social ties and marketization in an important emerging economy.