Political Connections and Innovation: A Stakeholder Perspective

On October 19, 2013, the Chinese government unexpectedly promulgated Decree 18, prohibiting officials from acting as independent directors in firms. This decree constituted an exogenous shock. Integrating the resource-based view and stakeholder theory, this study investigates whether losing political connections (PolConns) affects innovation strategy and how supply chain stakeholders influence this relationship. We chose nonstate-owned enterprises listed in the Chinese stock market as our sample firms, and the results of our analysis reveal that such enterprises initially with PolConns significantly increased their exploratory innovation after the decree was announced. Moreover, we observe heterogeneous moderating effects of major customers and major suppliers. This study has implications for both theory and practice. Theoretically, we provide a micro perspective on how institutional changes affect firms’ strategic choices in innovation, and we assess the policy effects of the decree. As such, this research enriches the literature on the institutional environment in supply chain management. For practitioners and policymakers, our research suggests that establishing a stable and fair institutional environment is conducive to the exploration of new technological fields, highlighting the need to carefully manage the link between daily operational decisions and public policy.