The role of political connection in access to finance, technology and new ventures success in emerging markets

• Published date: 01 May 2022
• Author: Amir Sohail,Rizwan Ullah,Habib Ahmad,Summra Khalid
• Date: 01 May 2022
• DOI: http://doi.org/10.1002/pa.2391

ACADEMIC PAPER

The role of political connection in access to finance,

technology and new ventures success in emerging markets

Amir Sohail

1

| Rizwan Ullah

2

| Habib Ahmad

3

| Summra Khalid

1

1

College of Business Administration, Liaoning

Technical University, Fuxin, China

2

Institute of Business Administration, Gomal

University, Dera Ismail Khan, Pakistan

3

Hamdard Institute of Management Sciences,

Hamdard University, Islamabad, Pakistan

Correspondence

Habib Ahmad, Hamdard Institute of

Management Sciences, Hamdard University,

Islamabad Campus, Islamabad, Pakistan.

Email: tumharahabib@gmail.com

This research examines how top managers/owners of new ventures utilize the politi-

cal connection to boost their performance and survival in the competitive market.

We conceptualized the model having access to finance and technology as mediators

between political connection and small and medium enterprises' (SMEs) success. We

conducted a survey and gathered empirical evidence from 242 Pakistani SMEs which

have started their operation for the last 10 years. The results of the structural equa-

tion modeling indicate that political connection significantly contributes to the suc-

cess of SMEs. The political connection has a significant influence on access to

finance while an insignificant influence on access to technology. Access to finance

has a significant influence while access to technology has an insignificant influence

on the success of SMEs. Moreover, access to finance partially mediates while access

to technology does not play the mediating role between the political tie and SMEs'

success. Our research recommends top managers/owners of new enterprises to build

an auspicious tie with the government and public officials to access valuable

resources that are necessary for growth and survival. The government and

policymakers need to interact with entrepreneurs and provide necessary resources

to ensure their success, growth and performance.

1|INTRODUCTION

A plethora of research has claimed that more than 50% of small busi-

nesses fail in the initial stage due to limited resources, poor support

and weak capabilities (Anwar & Shah, 2020; Watson & Everett, 1996).

In response to this, scholars and academia have shown an excessive

interest in studying determinants of newly born ventures (Åstebro &

Winter, 2012; El Kalak & Hudson, 2016; Tascón, Castaño, &

Castro, 2018). Kücher, Mayr, Mitter, Duller, & Feldbauer-Durstmüller,-

2020) and discovered several factors; entrepreneurial orientation

(Donbesuur, Boso, & Hultman, 2020; Stam & Elfring, 2008), IT capabil-

ities (Hao & Song, 2016; Khin & Lim, 2018), financial resources

(Anwar, Tajeddini, & Ullah, 2020; Linder, Lechner, & Pelzel, 2020).),

intellectual capital (Hayton, 2005; Pena, 2002) and networking

(Adomako, Danso, Boso, & Narteh, 2018) that positively contribute to

the survival of new ventures. Despite having a long term effort, a high

failure ratio is reported especially in emerging economies (Anwar &

Shah, 2020; Karabag, 2019). This is because of the difference in the

institutional conditions, market trends and regulations in emerging

economies than in developed nations (Ghosh, 2016). More specifi-

cally, valuable resources that are necessary for venture success and

industrial growth in emerging economies (e.g., China and Pakistan) are

controlled and possessed by governments (Wang, Hong, Kafouros, &

Wright, 2012). Hence, ventures having strong political connections have

a high chance of staying in the long term as compared to the ventures

having weak or no political ties (Anwar, Rehman , & Shah, 2018).In short,

the political tie has been deemed one of the significant factors of the

success and performance of newly born ventures in emerging markets

(Su, Xie, & Wang, 2015). However, little is known either political ties

directly influence new venture success or indirectly through other fac-

tors. In thepresent study, we filla gap in the literature by examining the

mediating role of access to finance and technology between political

connections and new venturesuccess.

There are three major reasons for testing the mediating role of

access to finance and technology. First, considering the misunder-

standing regarding the direct and indirect role of the political tie in the

Received: 6 August 2020 Revised: 11 August 2020 Accepted: 13 August 2020

DOI: 10.1002/pa.2391

J Public Affairs. 2022;22:e2391. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of12

https://doi.org/10.1002/pa.2391