On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms

• Published date: 01 January 2018
• Author: Jing Li,Jun Xia,Edward J. Zajac
• Date: 01 January 2018
• DOI: http://doi.org/10.1002/smj.2697

RESEARCH ARTICLE

On the duality of political and economic stakeholder

influence on firm innovation performance: Theory

and evidence from Chinese firms

Jing Li

1

| Jun Xia

2

| Edward J. Zajac

3

1

International Business, Beedie School of

Business, Simon Fraser University, Burnaby,

British Columbia, Canada

2

Organizations, Strategy, and International

Management, Jindal School of Management,

University of Texas at Dallas, Richardson, Texas

3

Management and Organizations, Kellogg School

of Management, Northwestern University,

Evanston, Illinois

Correspondence

Jun Xia, Jindal School of Management, University

of Texas at Dallas, Richardson, TX 75080.

E-mail: jun.xia@utdallas.edu

Funding information

National Natural Science Foundation of China,

Grant/Award number: Grant 7142 1002; Social

Sciences and Humanities Research Council of

Canada; Canada Research Chairs program

Research Summary: In this study, we propose and test a

multi-stakeholder perspective to address variation in inno-

vation performance across firms. Specifically, we analyze

how a focal firm’s innovation performance is shaped by

its political stakeholders (local and central governments)

and economic stakeholders (suppliers, buyers, and com-

petitors). Using a data set consisting of over 26,400 Chi-

nese firms, we first find support for our predictions that a

focal firm’s innovation performance will be enhanced by

both its government connections and the innovativeness

of its economic stakeholders. We then analyze whether

the interdependent effect of these political and economic

stakeholders is more likely to be synergistic versus

antagonistic, and find evidence consistent with the

antagonistic view.

Managerial Summary: We show how a firm’s innova-

tiveness is influenced strongly by its relationships to

external stakeholders. Specifically, we examine the poten-

tially dual-edged role of political stakeholders (local and

central governments) and economic stakeholders (sup-

pliers, buyers, and competitors). Using extensive data on

Chinese firms, we find: (a) that the higher the level of

government connections, the greater a firm’s innovative-

ness; (b) that firms located in proximity with more inno-

vative economic stakeholders also tend to have higher

innovation performance. We also look beyond these inde-

pendent positive effects to examine the joint effect of

these two forms of stakeholder influence, and here we see

that more influence is not always better. Specifically, we

find that the innovation benefit that typically accrues to

firms in proximity to more innovative economic stake-

holders is weakened when those firms also have higher-

level government connections.

Received: 23 June 2015 Revised: 18 August 2017 Accepted: 20 August 2017 Published on: 27 October 2017

DOI: 10.1002/smj.2697

Strat Mgmt J. 2018;39:193–216. wileyonlinelibrary.com/journal/smj Copyright © 2017 John Wiley & Sons, Ltd. 193

KEYWORDS

external innovativeness, firm innovation performance,

multi-stakeholder perspective, political connections

1|INTRODUCTION

Given that innovation represents the lifeblood for many organizations, it is not surprising that a sig-

nificant body of research has grown that is devoted to better understanding the myriad of factors that

can affect an organization’s propensity to innovate. While earlier research predominantly empha-

sized internal factors (Crossan & Apaydin, 2010), the trend in more recent research has been to con-

sider how factors external to a firm can affect the firm’s innovation performance (Ahuja,

Lampert, & Tandon, 2008). Here, primary attention has been given to the role of economic forces,

with some research also considering the potential relevance of non-economic forces (H. Li & Atua-

hene-Gima, 2001; K. Z. Zhou, Gao, & Zhao, 2017). In general, however, little if any research on

firm innovation performance has systematically assessed the dual influence (and the possible dual-

ity) of political and economic factors.

In this study, we develop and test a multi-stakeholder framework for analysis that considers how

and why both economic and political forces can drive firm innovation, with special emphasis on the

duality of such forces when considered independently and interdependently. Our multi-stakeholder

perspective follows the instrumental tradition of stakeholder analysis by providing “a framework for

examining the connections, if any, between the practice of stakeholder management and the achieve-

ment of various corporate performance goals”(Donaldson & Preston, 1995, p. 67). Specifically, we

analyze how and why particular external stakeholders can serve to potentially stimulate and/or con-

strain a firm’s efforts to innovate. Indeed, while it is well understood that organizations can benefit

from the resources and support from external stakeholders (Savage, Nix, Whitehead, & Blair, 1991;

Spencer, 2008), it is similarly well understood that organizations are often influenced by multiple

stakeholders who may have different demands, objectives, and expectations as well as possess dif-

ferent resources (Oliver, 1991; Pfeffer & Salancik, 1978; Powell, 1988). In other words, we seek to

add to current knowledge regarding the role of major external stakeholders on a firm’s innovation

performance by providing a more nuanced understanding of their independent and interdependent

effects.

To address this issue, we focus on two types of key stakeholders—(a) market stakeholders (sup-

pliers, buyers, and competitors) (von der Heidt & Scott, 2011), and (b) government agencies

(Samson, 2000)—because they have power to affect a firm’s strategy (Pfeffer & Salancik, 1978;

Porter, 1980), such as product innovation. Identifying appropriate stakeholders of interest and under-

standing their influences are fundamental to stakeholder analysis (Harrison & St. John, 1994). More-

over, we contextualize our analysis by focusing on China, where the combined influence of

economic and political forces is particularly salient. To capture the impact of government stake-

holders, we examine a firm’s“administrative connection,”as indicated by a firm’s affiliation with

the government at different levels (e.g., the central, provincial, or municipal governments) (Tan,

Li, & Xia, 2007; Wang, Hong, Kafouros, & Wright, 2012). To capture the impact of key market

stakeholders, we develop the concept of external innovativeness, which refers to the level of new

194 LI ET AL.