Political connections, entry barriers, and firm performance

Abstract

Purpose – The purpose of this paper is to propose, by drawing on the resource-based view (RBV) and economic regulation theory, that companies with political connections are more likely to enter into industries with high entry barriers, as they are more likely to obtain entry permits from the government and can gain more benefits after entering these industries. Managers’ political connections are a crucial determinant of firm scope. Although the existing research on this topic has shown that firms tend to use political connections to increase their scope, it remains unclear which industries companies with political connections choose to enter. Drawing on the resource-based view and economic regulation theory, we propose that companies with political connections are more likely to enter into industries with high entry barriers, as they are more likely to obtain entry permits from the government and can gain more benefits after entering these industries. Design/methodology/approach – Data on a sample of Chinese listed privately owned enterprises were used and the findings support the main predictions. Findings – The findings support the main predictions. Originality/value – The research findings of this study contribute to the existing research on political connections and strategic choices.