The impact of managerial political connections and quality on government subsidies

Abstract

Purpose The purpose of this paper is to adopt a contingency perspective and examine the impact of managerial political connections on access to a specific external resource – government subsidies – in China. Design/methodology/approach This study proposes that managerial political connections help firms gain access to government subsidies; in addition, firms must signal their managerial quality through managerial reputation and/or past firm performance to address government officials' concerns with job safety and future career development. These cues, in turn, ensure and increase confidence on government officials' resource allocation decisions in favor of the firm. The authors test the contingency hypothesis by using archival data collected from 212 Chinese firms that went public between 2002 and 2004. Findings This study finds that managerial political connections play a significant positive impact on obtaining government subsidies only when managerial reputation is high, and/or when firm past performance is superior vis‐à‐vis others. Originality/value This study contributes to the existing literature in two ways. First, it enlarges the research scope of political connections by examining their impact on government subsidies instead of financial performance. Second, and more importantly, it posits that the role of political connections is contingent on other moderating factors such as managerial reputation and past firm performance.

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