Mixed effects of business and political ties in planning flexibility: Insights from Turkey

Abstract

Despite increasing attention to the role of business and political ties in emerging economies, few studies have explicitly investigated their relations to dynamic capabilities outside of the East-Asian context. Following the relevant literature that proposes that both business and political ties are related to firm performance, this study refines the explanatory role of planning flexibility in how business and political ties relate to both financial and non-financial firm performance. Drawing from dynamic capabilities view and applying partial least squares structural equation modeling to data from 302 small and medium-sized enterprises (SMEs) in Turkey, we find that, while business ties are positively related to planning flexibility, political ties have a negative association with planning flexibility. Moreover, we provide empirical evidence that planning flexibility positively mediates the relationship between business ties and financial and non-financial performance. Conversely, there exists a negative indirect relationship between political ties and financial and non-financial performance. Our findings have significant implications for firms and managers, who should assess the benefits and costs embedded within business and political ties to improve firm performance.