The Activation of Social Networks: Evidence from Corporate Political and Family Connections

Abstract

Political connections are critical social capital to modern business, especially in emerging markets. Whether political connection triggers cost or benefits to connected firms is yet to be concluded. Instead, based on the theory of social status attainment, we propose that firms commit symbolic compliance (i.e., high-quality information disclosure) to activate the political rewards capital from political ties (i.e., state bank loans or government subsidies). We further theorize the complementary relationship between family and political capital in such an activation process. Contextualized in a panel dataset of Chinese private listed firms, we found solid supports for the compliance-exploitation actions by politically connected firms. Moreover, the political rewards become restrained whilst symbolic compliance tends to be stronger when the firm already has family capital. Overall, the study advances the literature on corporate political strategies by introducing the concept of political capital activation. It also presents new evidence of the complementary relationship between the political capital and family capital to corporate strategies.