Political connections and corporate innovation: A stepping stone or stumbling block?

Abstract

The impact of political experience on corporate innovation has been well studied. However, no study has specifically focused on the impact of political intensity on innovation. This paper addresses this gap by constructing an index of political connection intensity and examining the nonlinear effect of political connections on corporate innovation using a dataset of Chinese A-share listed firms from 2008 to 2017. The results demonstrate that the intensity of political connections has an inverted U-shaped impact on corporate innovation. Moreover, this relationship is more pronounced for firms located in the eastern or northern regions, state-owned enterprises, and firms in the mature stage. Further analyses indicate that innovation subsidies and rent-seeking behaviors mediate the inverted U-shaped relationship. Additionally, marketization negatively moderates this relationship, while the anti-corruption campaign in China positively moderates it. These findings strongly confirm that different intensities of political connections have varying impacts on corporate innovation. As a result, this study clarifies the seemingly contradictory conclusions found in the existing literature.