Do Different Types of Political Connections have Different Impacts on Firm Performance in China?

Political connections can be considered a special kind of human relation and powerful guanxi in China. In particular, CEOs’ political connections reduce external uncertainty and increase the accessibility of government resources. Most studies view political connections as a special resource that provides firms with potential information and legitimacy benefits. Despite advances in understanding how political connections impact firms, few attempts have been made to examine how different types of political connections impact firm performance differently in the Chinese context. We apply network theory to the Chinese context and find seven types of political connections in China. Then, we examine whether these political connections have differentiated effects on firm performance with data from 2,605 listed firms in China over the 2015-2017 period. The results from this study posit that CEOs’ political connections have no significant impact on performance. Thus, if we do not classify political connections according to network theory, we may conclude that they do not affect firm performance in China. However, this study shows that the influence of political connections on firm performance depends on the type of political connections. Some political connections have no effect on performance, while others have a strong impact on it. Specifically, CEOs’ local political connections have a stronger positive impact on performance than CEOs’ central political connections. Moreover, CEOs’ CPC (Chinese People's Congress)-type political connections and CPPCC (Chinese People's Political Consultative Conference)-type political connections have a stronger positive impact on firm performance than government-type political connections.