The effects of political ties on innovation performance in China: Differences between central and local governments

Although the formation of political ties is considered important in emerging markets, the possibility of goal differences among the tie partners has often been ignored. Herein, we illustrate that central and local governments have non-identical policy goals, stability, operating mechanisms, and persistence of reciprocal favors. Central government ties occur outside of business decision-making locales. As the expected returns are unclear or even discounted, the ties are less likely to lead to innovation. Conversely, local government ties are built locally and visibly, enabling the efficient use of political resources for innovation. We further test whether the effects of political ties change as firms in emerging markets become more globalized, using international research and development partnership as a moderator to proxy the global engagement toward innovation. Our findings show that the effects of political ties differ by partner type, and negative effects can be reduced as firms become more globally engaged.