IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v137y2021icp255-266.html
   My bibliography  Save this article

The effect of political turnover on firms’ strategic change in the emerging economies: The moderating role of political connections and financial resources

Author

Listed:
  • Choi, Seong-jin
  • Liu, Huilong
  • Yin, Jun
  • Qi, Yunfei
  • Lee, Jeoung Yul

Abstract

Do external uncertainties hold back or accelerate firms’ strategic change? To examine this issue, we develop a theoretical framework on the relationship between policy uncertainty caused by political turnover and the level of a firm’s strategic change and also theorize how political connections and financial resources affect firms’ response in the form of strategic change to environmental uncertainty. We test our framework with 16,451 firm-year observations of listed firms in China from 2008 to 2015 and find that political turnover has a negative influence on the level of a firm’s strategic change. Moreover, this influence is mitigated by political connections and/or financial resources.

Suggested Citation

  • Choi, Seong-jin & Liu, Huilong & Yin, Jun & Qi, Yunfei & Lee, Jeoung Yul, 2021. "The effect of political turnover on firms’ strategic change in the emerging economies: The moderating role of political connections and financial resources," Journal of Business Research, Elsevier, vol. 137(C), pages 255-266.
    • Handle: RePEc:eee:jbrese:v:137:y:2021:i:c:p:255-266
    DOI: 10.1016/j.jbusres.2021.08.034
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296321005956
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbusres.2021.08.034?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gordon E Greenley & Mehmet Oktemgil, 1998. "A Comparison of Slack Resources in High and Low Performing British Companies," Journal of Management Studies, Wiley Blackwell, vol. 35(3), pages 377-398, May.
    2. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
    3. Sharma, Piyush & Cheng, Louis T.W. & Leung, T.Y., 2020. "Impact of political connections on Chinese export firms' performance – Lessons for other emerging markets," Journal of Business Research, Elsevier, vol. 106(C), pages 24-34.
    4. Amore, Mario Daniele & Minichilli, Alessandro, 2018. "Local Political Uncertainty, Family Control, and Investment Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(4), pages 1781-1804, August.
    5. López-Gamero, María D. & Molina-Azorín, José F. & Claver-Cortés, Enrique, 2011. "Environmental uncertainty and environmental management perception: A multiple case study," Journal of Business Research, Elsevier, vol. 64(4), pages 427-435, April.
    6. Çolak, Gönül & Durnev, Art & Qian, Yiming, 2017. "Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2523-2564, December.
    7. Michael K. Bednar & Steven Boivie & Nicholas R. Prince, 2013. "Burr Under the Saddle: How Media Coverage Influences Strategic Change," Organization Science, INFORMS, vol. 24(3), pages 910-925, June.
    8. Alan D. Jagolinzer & David F. Larcker & Gaizka Ormazabal & Daniel J. Taylor, 2020. "Political Connections and the Informativeness of Insider Trades," Journal of Finance, American Finance Association, vol. 75(4), pages 1833-1876, August.
    9. Fan, Qingji & Kuper, Paul & Choi, Yun Hyeong & Choi, Seong-jin, 2021. "Does ICT development curb firms’ perceived corruption pressure? The contingent impact of institutional qualities and competitive conditions," Journal of Business Research, Elsevier, vol. 135(C), pages 496-507.
    10. Danling Jiang & Alok Kumar & Kelvin K. F. Law, 2016. "Political contributions and analyst behavior," Review of Accounting Studies, Springer, vol. 21(1), pages 37-88, March.
    11. Jana Oehmichen & Sebastian Schrapp & Michael Wolff, 2017. "Who needs experts most? Board industry expertise and strategic change—a contingency perspective," Strategic Management Journal, Wiley Blackwell, vol. 38(3), pages 645-656, March.
    12. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    13. Orlando Curtae' Richard & Jie Wu & Livia Anna Markoczy & Yunhyung Chung, 2019. "Top management team demographic‐faultline strength and strategic change: What role does environmental dynamism play?," Strategic Management Journal, Wiley Blackwell, vol. 40(6), pages 987-1009, June.
    14. Chen, Shaojian & Mao, Hui & Feng, Zongxian, 2020. "Political uncertainty and firm entry: Evidence from Chinese manufacturing industries," Journal of Business Research, Elsevier, vol. 120(C), pages 16-30.
    15. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, vol. 67(1), pages 45-84, February.
    16. Bhattacharya, Utpal & Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2017. "What Affects Innovation More: Policy or Policy Uncertainty?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(5), pages 1869-1901, October.
    17. Edward J. Zajac & Stephen M. Shortell, 1989. "Changing generic strategies: Likelihood, direction, and performance implications," Strategic Management Journal, Wiley Blackwell, vol. 10(5), pages 413-430, September.
    18. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 391-415.
    19. Jawad M. Addoum & Stefanos Delikouras & Da Ke & Alok Kumar, 2019. "Underreaction to Political Information and Price Momentum," Financial Management, Financial Management Association International, vol. 48(3), pages 773-804, September.
    20. Robert E. Hoskisson & Michael A. Hitt, 1988. "Strategic control systems and relative r&d investment in large multiproduct firms," Strategic Management Journal, Wiley Blackwell, vol. 9(6), pages 605-621, November.
    21. Amy J. Hillman & Asghar Zardkoohi & Leonard Bierman, 1999. "Corporate political strategies and firm performance: indications of firm‐specific benefits from personal service in the U.S. government," Strategic Management Journal, Wiley Blackwell, vol. 20(1), pages 67-81, January.
    22. An, Heng & Chen, Yanyan & Luo, Danglun & Zhang, Ting, 2016. "Political uncertainty and corporate investment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 174-189.
    23. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    24. Jerry Goodstein & Kanak Gautam & Warren Boeker, 1994. "The effects of board size and diversity on strategic change," Strategic Management Journal, Wiley Blackwell, vol. 15(3), pages 241-250, March.
    25. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    26. Heng Liu & Xiu-hao Ding & Hai Guo & Jin-hui Luo, 2014. "How does slack affect product innovation in high-tech Chinese firms: The contingent value of entrepreneurial orientation," Asia Pacific Journal of Management, Springer, vol. 31(1), pages 47-68, March.
    27. Yan Zhang & Nandini Rajagopalan, 2010. "Once an outsider, always an outsider? CEO origin, strategic change, and firm performance," Strategic Management Journal, Wiley Blackwell, vol. 31(3), pages 334-346, March.
    28. Matthew S. Kraatz & Edward J. Zajac, 2001. "How Organizational Resources Affect Strategic Change and Performance in Turbulent Environments: Theory and Evidence," Organization Science, INFORMS, vol. 12(5), pages 632-657, October.
    29. Weiguo Zhong & Ya Lin & Danxue Gao & Haibin Yang, 2019. "Does politician turnover affect foreign subsidiary performance? Evidence in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(7), pages 1184-1212, September.
    30. Constance E. Helfat & Margaret A. Peteraf, 2015. "Managerial cognitive capabilities and the microfoundations of dynamic capabilities," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 831-850, June.
    31. Christian Engau & Volker Hoffmann, 2011. "Corporate response strategies to regulatory uncertainty: evidence from uncertainty about post-Kyoto regulation," Policy Sciences, Springer;Society of Policy Sciences, vol. 44(1), pages 53-80, March.
    32. Charles R. Schwenk, 1989. "Linking Cognitive, Organizational And Political Factors In Explaining Strategic Change," Journal of Management Studies, Wiley Blackwell, vol. 26(2), pages 177-187, March.
    33. Xu, Nianhang & Chen, Qinyuan & Xu, Yan & Chan, Kam C., 2016. "Political uncertainty and cash holdings: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 276-295.
    34. Chen, Chung-Jen & Huang, Yi-Fen, 2010. "Creative workforce density, organizational slack, and innovation performance," Journal of Business Research, Elsevier, vol. 63(4), pages 411-417, April.
    35. James Ming Chen, 2017. "Risk and Uncertainty," Quantitative Perspectives on Behavioral Economics and Finance, in: Econophysics and Capital Asset Pricing, chapter 0, pages 189-211, Palgrave Macmillan.
    36. Justin Tan & Mike W. Peng, 2003. "Organizational slack and firm performance during economic transitions: two studies from an emerging economy," Strategic Management Journal, Wiley Blackwell, vol. 24(13), pages 1249-1263, December.
    37. Kathleen M. Eisenhardt & Claudia Bird Schoonhoven, 1996. "Resource-based View of Strategic Alliance Formation: Strategic and Social Effects in Entrepreneurial Firms," Organization Science, INFORMS, vol. 7(2), pages 136-150, April.
    38. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political turnover and firm pollution discharges: An empirical study," China Economic Review, Elsevier, vol. 58(C).
    39. Timothy J. Quigley & Donald C. Hambrick, 2012. "When the former ceo stays on as board chair: effects on successor discretion, strategic change, and performance," Strategic Management Journal, Wiley Blackwell, vol. 33(7), pages 834-859, July.
    40. María del Carmen Triana & Toyah L. Miller & Tiffany M. Trzebiatowski, 2014. "The Double-Edged Nature of Board Gender Diversity: Diversity, Firm Performance, and the Power of Women Directors as Predictors of Strategic Change," Organization Science, INFORMS, vol. 25(2), pages 609-632, April.
    41. Razvan Lungeanu & Edward J. Zajac, 2019. "Thinking Broad and Deep: Why Some Directors Exert an Outsized Influence on Strategic Change," Organization Science, INFORMS, vol. 30(3), pages 489-508, May.
    42. Katalin Takacs Haynes & Amy Hillman, 2010. "The effect of board capital and CEO power on strategic change," Strategic Management Journal, Wiley Blackwell, vol. 31(11), pages 1145-1163, November.
    43. Choi, Seong-jin & Jiménez, Alfredo & Lee, Jeoung Yul, 2020. "The impact of political capabilities and political markets on firms' decision to lobby," Journal of International Management, Elsevier, vol. 26(4).
    44. Julie Juan Li & Laura Poppo & Kevin Zheng Zhou, 2008. "Do managerial ties in China always produce value? Competition, uncertainty, and domestic vs. foreign firms," Strategic Management Journal, Wiley Blackwell, vol. 29(4), pages 383-400, April.
    45. Jens, Candace E., 2017. "Political uncertainty and investment: Causal evidence from U.S. gubernatorial elections," Journal of Financial Economics, Elsevier, vol. 124(3), pages 563-579.
    46. Amon Chizema & Xiaohui Liu & Jiangyong Lu & Lan Gao, 2015. "Politically connected boards and top executive pay in Chinese listed firms," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 890-906, June.
    47. David Schoenherr, 2019. "Political Connections and Allocative Distortions," Journal of Finance, American Finance Association, vol. 74(2), pages 543-586, April.
    48. Pol Herrmann & Sucheta Nadkarni, 2014. "Managing strategic change: The duality of CEO personality," Strategic Management Journal, Wiley Blackwell, vol. 35(9), pages 1318-1342, September.
    49. Innan Sasaki & Josip Kotlar & Davide Ravasi & Eero Vaara, 2020. "Dealing with revered past: Historical identity statements and strategic change in Japanese family firms," Strategic Management Journal, Wiley Blackwell, vol. 41(3), pages 590-623, March.
    50. Mingyi Hung & Yongtae Kim & Siqi Li, 2018. "Political connections and voluntary disclosure: Evidence from around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(3), pages 272-302, April.
    51. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guanglei Yang & Dongqin Cao & Guoxing Zhang, 2023. "How does industry-university-research collaborative innovation affect energy intensity in China: a novel explanation based on political turnover," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    2. Xiyan Bai & Chan Lyu, 2023. "Environmental Information Disclosure and Corporate Green Innovation: The Moderating Effect of Formal and Informal Institutions," Sustainability, MDPI, vol. 15(7), pages 1-23, April.
    3. Lee, Jeoung Yul & Jiménez, Alfredo & Choi, Seong-jin & Choi, Yun Hyeong, 2022. "Ideological polarization and corporate lobbying activity: The contingent impact of corruption distance," Journal of Business Research, Elsevier, vol. 141(C), pages 448-461.
    4. Ji, Xiaoqing & Liu, Shuai & Lang, Jingyi, 2022. "Assessing the impact of officials' turnover on urban economic efficiency: From the perspective of political promotion incentive and power rent-seeking incentive," Socio-Economic Planning Sciences, Elsevier, vol. 82(PB).
    5. Wu, Lichao & Wei, Yingqi & Wang, Chengang & McDonald, Frank & Han, Xia, 2022. "The importance of institutional and financial resources for export performance associated with technological innovation," Technological Forecasting and Social Change, Elsevier, vol. 185(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Afzali, Mansoor & Ҫolak, Gönül & Fu, Mengchuan, 2021. "Economic uncertainty and corruption: Evidence from public and private firms," Journal of Financial Stability, Elsevier, vol. 57(C).
    2. Chen, Yanyan, 2022. "Does political turnover affect corporate investment? Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PA).
    3. Swanpitak, Tanapond & Pan, Xiaofei & Suardi, Sandy, 2020. "The value of family control during political uncertainty: Evidence from Thailand's constitutional change in 201411We are grateful for helpful comments and suggestions provided by Shu-Ching Chou, Wooch," Emerging Markets Review, Elsevier, vol. 44(C).
    4. Ji (George) Wu & Jian Zhang & Yiwen Wu & Dongmin Kong, 2020. "When to go abroad: economic policy uncertainty and Chinese firms’ overseas investment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1435-1470, June.
    5. Ahmad, Muhammad Farooq & Aziz, Saqib & El-Khatib, Rwan & Kowalewski, Oskar, 2023. "Firm-level political risk and dividend payout," International Review of Financial Analysis, Elsevier, vol. 86(C).
    6. Lin William Cong & Sabrina T. Howell, 2021. "Policy Uncertainty and Innovation: Evidence from Initial Public Offering Interventions in China," Management Science, INFORMS, vol. 67(11), pages 7238-7261, November.
    7. Ji, Xiaoqing & Liu, Shuai & Lang, Jingyi, 2022. "Assessing the impact of officials' turnover on urban economic efficiency: From the perspective of political promotion incentive and power rent-seeking incentive," Socio-Economic Planning Sciences, Elsevier, vol. 82(PB).
    8. Kwabi, Frank Obenpong & Boateng, Agyenim & Wonu, Chizindu & Kariuki, Charles & Du, Anna, 2023. "Political uncertainty and cross-border equity portfolio allocation decisions: International evidence," International Review of Financial Analysis, Elsevier, vol. 87(C).
    9. Cao, Yang & Chen, Yinghui & Zhang, Yuhe, 2022. "Political uncertainty, innovation-driven strategy, and corporate R&D," Research in International Business and Finance, Elsevier, vol. 60(C).
    10. Wei-Fong Pan, 2019. "Geopolitical Risk and R&D investment," Economics Discussion Papers em-dp2019-11, Department of Economics, University of Reading.
    11. Gu, Xian & Hasan, Iftekhar & Zhu, Yun, 2019. "Political influence and financial flexibility: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 142-156.
    12. Xiangyuan Meng & Haoge Guo & Jie Li, 2023. "Economic policy uncertainty and corporate investment: evidence from China," Economic Change and Restructuring, Springer, vol. 56(6), pages 4491-4529, December.
    13. Cui, Di & Ding, Mingfa & Han, Yikai & Suardi, Sandy, 2022. "Foreign shareholders, relative foreign policy uncertainty and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 84(C).
    14. Xu, Zhaoxia, 2020. "Economic policy uncertainty, cost of capital, and corporate innovation," Journal of Banking & Finance, Elsevier, vol. 111(C).
    15. Cheng, Maoyong & Guo, Pin & Jin, Justin Yiqiang & Geng, Hongyan, 2021. "Political uncertainty and city bank lending in China: Evidence from city government official changes," Emerging Markets Review, Elsevier, vol. 49(C).
    16. Onal, Bunyamin, 2023. "Do politically connected directors play an information role under policy uncertainty?," Journal of Multinational Financial Management, Elsevier, vol. 68(C).
    17. Chen, Shaojian & Mao, Hui & Feng, Zongxian, 2020. "Political uncertainty and firm entry: Evidence from Chinese manufacturing industries," Journal of Business Research, Elsevier, vol. 120(C), pages 16-30.
    18. Marcelin, Isaac & Stephen, Sheryl-Ann K. & Fanta, Fassil & Tecklezion, Mussie, 2019. "Political regimes, investment and electoral uncertainty," Research in International Business and Finance, Elsevier, vol. 47(C), pages 580-599.
    19. Biswas, Sonny & Zhai, Wei, 2021. "Economic policy uncertainty and cross-border lending," Journal of Corporate Finance, Elsevier, vol. 67(C).
    20. Marc Deloof & Jie Yang & Chaoyang Xu, 2022. "How uncertainty in industry policy affects corporate investment in China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1289-1313, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:137:y:2021:i:c:p:255-266. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.