Political Connections Formation as A Mixed Gamble: Evidence from Family Firms in China

Abstract

The pursuit of potential benefits is an important motivation for firms to form connections with political actors, however, such connections may also create costs and risks for firms, dampening firms’ motivation in forming such connections. We extend the political strategy literature and conceptualize the formation of political connections as a mixed gamble wherein firms would selectively form political connections to pursue the potential gains while avoiding the potential losses to their endowment. We apply the mixed gamble model on family firms and propose that compared with their nonfamily peers, family firms will likely avoid connections that may result in a loss of their most important endowment (i.e., socioemotional wealth [SEW]) even if such connections may bring them potential financial gains. Instead, family firms are more likely to form the type of connections that are expected to bring future SEW gains despite limited potential financial gains from such connections. These relationships are amplified when family-based goals become more important for firms, and weakened if firms’ financial performance is threatened. Our analysis of listed non-state-owned firms in China between 2004 and 2016 lends support to our theory. This study extends research on political strategy and family business.