Political ties and market entries of business groups in emerging economies

Abstract

The state and its policies are major sources of uncertainty for firms. They control the opportunities and threats faced by firms and shape their competitive environments. Firms proactively adopt political strategies to influence public policies and create favorable external environment. A prevalent political strategy adopted by firms in emerging economies is to cultivate personal relationships with political actors. Despite of the recognized importance of political ties to firms, we know relatively little about when and how they function to shape firm behavior and outcomes. To address these important issues, this dissertation investigates how political ties maintained by business groups in emerging economies affect their entries into new industries. The empirical analysis of this dissertation is based on extensive longitudinal data of the large business groups in Taiwan over an 18-year period from 1986-2004. Based on a theoretical analysis of the evolutionary role of political ties in emerging economies, we further conduct two empirical studies in the context of Taiwan across three stages of its institutional transitions. In the first empirical study, we examine how different types of political ties (i.e. formal, family, and social ties) influence market entries individually and in combination by drawing on the literature of political embeddedness and corporate political activity. This study provides a theoretical basis for the predictably differential effects of different types of political ties resulting from the distinct nature of interplays between connected parties. In the second study, we examine how political ties maintained by a firm with rival political parties affect the firm¿s entry into new industries. Drawing on the social network research, resource dependence theory, and corporate political strategy literature, we argue that the impact of a firm¿s portfolio of political ties on market entry depends on the distribution of political power among rival political parties and the concomitant interdependency between the focal firm and its political partners. The findings have implications for research on the corporate political strategy, contingencies of social relationships, the expansion of multi-business firms, and the organization of government.