Are collective political actions and private political actions substitutes or complements? Empirical evidence from China's private sector

• Author: Nan Jia
• DOI: http://doi.org/10.1002/smj.2092
• Published date: 01 February 2014
• Date: 01 February 2014

Strategic Management Journal

Strat. Mgmt. J.,35: 292– 315 (2014)

Published online EarlyView 19 April 2013 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2092

Received 2 December 2010;Final revision received 2 January 2013

ARE COLLECTIVE POLITICAL ACTIONS AND PRIVATE

POLITICAL ACTIONS SUBSTITUTES OR

COMPLEMENTS? EMPIRICAL EVIDENCE FROM

CHINA’S PRIVATE SECTOR

NAN JIA*

Department of Management and Organization, Marshall School of Business,

University of Southern California, Los Angeles, California, U.S.A.

This paper examines the circumstances under which collective and private corporate political

actions are more likely to be substitutes or complements. Using data based on a series of

nationwide surveys conducted on privately owned firms in China, I find that firms that are

engaged in collective political actions are more likely to pursue private political actions. This

positive relationship is stronger in less economically developed provinces and when there are

greater opportunities for the state to redistribute economic resources in product and capital

markets. Meanwhile, this relationship is weaker in the presence of heavier regulatory burdens

and for firms in which the state has some equity or owned by individuals who had prior political

careers. These findings contribute to the corporate political action literature. Copyright 2013

John Wiley & Sons, Ltd.

INTRODUCTION

Corporate political actions (CPAs) are activities

undertaken by firms that target the political

system to influence political decisions and public

policies for private ends, thereby contributing

to firms’ overall performance (e.g., Baysinger,

1984; Bonardi et al., 2006; Hillman et al., 1999;

Peng and Luo, 2000). A key decision for firms

in pursuing CPAs is the type of political action

that is involved; that is, whether the firm should

pursue political actions collectively with other

firms or individually (Hillman and Hitt, 1999).

In the CPA literature, there is an ongoing debate

between whether collective and private CPAs are

substitutes or complements. On the one hand,

Keywords: corporate political action; collective political

action; complements; substitutes; China

*Correspondence to: Nan Jia, Marshall School of Business,

University of Southern California, BRI 306, 3670 Trousdale

Parkway, Los Angeles, CA 90089– 0808, U.S.A. E-mail:

nan.jia@marshall.usc.edu

Copyright 2013 John Wiley & Sons, Ltd.

many studies show that collective and private

CPAs are substitutes in that the decision to pursue

one obviates the need for the other. Based on

this assumption, prior studies have examined the

factors that may shift a firm’s preferences toward

private political actions instead of collective

political actions, or vice versa (e.g., Hansen et al.,

2005; Hillman and Hitt, 1999). On the other hand,

other studies have found that firms tend to com-

bine the use of different types of CPAs because

collective political actions facilitate a firm’s pur-

suit of private political actions by helping it gain

greater access to politicians and legislators. Based

on this reasoning, collective and private CPAs are

complementary (e.g., Hansen and Mitchell, 2000;

Hansen et al., 2004; Schuler et al., 2002).

This paper aims to reconcile these two views

by drawing on theories of collective action,

institutional economics, and political economy to

identify the contingencies under which collective

and private CPAs are more likely to be substitutes

or complements. Specifically, I examine whether

Collective & Private Political Actions: Substitutes or Complements? 293

and when firms that are already engaged in col-

lective political actions are more (or less) likely to

further pursue private political actions. I focus on

two sets of moderating conditions that may alter

this relationship. The first set of factors relates to

how institutional environments affect the political

benefits achievable through different types of

political actions, and the second set of factors

relates to alternative opportunities for individual

firms to gain access to state actors to pursue private

political actions. Integrating insights from other

bodies of theories enables me to generate testable

and observable predictions about the relationship

between collective and private political actions,

which helps to address the criticism that CPA

research generally suffers from the difficulties of

empirically testing many of the insights and propo-

sitions that have emerged from conceptual work.

In addition to addressing this theoretical ten-

sion, this paper also intends to broaden our current

understanding of CPAs in the context of the Chi-

nese private sector. Given the immense influence

of the state in the establishment and development

of virtually all markets in China, managing

business-government relationships and undertak-

ing political strategies have become essential com-

ponents of firms’ core strategies that few Chinese

firms can avoid (e.g., Bai, Lu, and Tao, 2006; Chen

and Dickson, 2010; Cull and Xu, 2005; Dickson,

2003; Kennedy, 2005; Li and Zhang, 2007; Luo,

2003; Peng and Luo, 2000). Understanding how

firms from a wide range of locations and indus-

tries organize their political activities in China is of

great interest to both academics and practitioners

who intend to do business there.

This paper tests its hypotheses by employing

novel firm-level surveys conducted on nationwide

samples of privately owned enterprises (POEs) in

China in 1995, 1997, 2000, 2002, 2004, and 2006,

as well as province-level institutional indices for

each of the years listed above. The results indicate

that, on average, the firms that participate in the

most prominent collective political organization,

known as the All-China Federation of Industry

& Commerce (ACFIC), have a greater propensity

to seek individual participation in the People’s

Congress (the Congress) or the People’s Consulta-

tive Conference (the Conference), a type of private

political action that is of the utmost importance

to private entrepreneurs in China (Li et al., 2006).

More importantly, ACFIC members are more

likely to seek private political participation than

non-ACFIC members in provinces that are less

economically developed and possess governments

with greater redistribution powers in product and

capital markets. Finally, state ownership, prior

political connections, and an environment with

heavier regulatory burdens weaken the greater

tendency to seek private political participation that

ACFIC members display relative to non-ACFIC

members.

As noted above, this paper contributes to the

CPA literature by deepening our understanding

of the relationship between collective and pri-

vate CPAs as substitutes or complements (e.g.,

Hansen et al., 2005; Hillman and Hitt, 1999; Gray

and Lowery, 1997; Schuler et al., 2002). Going

beyond a direct “horse race” between the two

contrasting predictions of the nature of this rela-

tionship, this paper delineates the circumstances

under which the strength of the theoretical mech-

anisms that drive a substitutive or complementary

relationship vary, thereby providing comprehen-

sive, nuanced, and contingent perspectives regard-

ing firms’ decisions to pursue either collective or

individual CPAs.

Moreover, this paper also contributes to the

emerging body of research that examines firms’

political strategies in the context of developing

countries. Although firms have been found to

more actively pursue political actions in locations

where markets and market-supporting institutions

are less developed (e.g., Henisz, 2000; Henisz and

Zelner, 2003; Li and Zhang, 2007; Li et al., 2006;

Luo, 2003), little is known about the influence

of market-supporting institutions on how firms

pursue political actions, such as their incentives to

pursue collective and/or private CPAs. To address

this gap, this paper examines two different aspects

of the development of the institutional environ-

ment. An institutional environment characterized

by underdeveloped infrastructure creates a need

for a range of public policies that are likely to be

agreed upon by firms as Pareto improving, thus

leading to greater marginal returns of collective

political actions relative to private political actions.

Meanwhile, an institutional environment fraught

with opportunities for wealth redistribution gener-

ates greater chances of pursuing political benefits

that are deemed to be of a zero-sum nature— a

condition that encourages private political actions.

These aspects have different implications for the

value of private political actions versus the value

of collective political actions and, thus, have

Copyright 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J.,35: 292– 315 (2014)

DOI: 10.1002/smj