Political Ties and Firm Performance: The Effects of Proself and Prosocial Engagement and Institutional Development

Research Summary: We examine the value of political ties on firm performance in an emerging economy. Using social exchange theory, we posit that political connections propel firms to engage more in proself and prosocial activities, which mediate the relationship between political ties and firm performance. The institutional environment moderates the dual mediations such that as the institutional environment improves, the mediation effect through proself engagement weakens, whereas the mediation effect through prosocial engagement strengthens. We found support for these propositions by analyzing two samples of firms in China: A surveyed sample of 363 small- and medium-sized firms and data from 2,780 publicly listed firms from 1999 to 2014. Our findings shed light on the strategic value of political ties, coinciding with the development of institutional environments.