Political Strategy and Market Capabilities: Evidence from the Chinese Private Sector

Abstract

ABSTRACTIn this article, I argue that in emerging markets firms' market capabilities are positively related to the political strategies that they employ to reduce the risks of expropriation by public and private entities. I focus specifically on the moderating conditions, including institutional environments that have direct constraint on governmental power, supportive policies that promote private sector growth, and developed legal systems. My empirical analysis utilizes data on privately owned Chinese enterprises. The results show that firms' market capabilities – as indicated by their asset turnover ratios and R&D intensity – are positively related to their likelihood of participating in key policymaking political organizations but this relationship is weaker in provinces that have more effective constraints on governmental power, more supportive policies for private sector growth, and more developed legal systems.