Managerial Ties And Firm Performance: Institutional Embeddedness And Influencial Paths

Economy transition means a fundamental change of tansaction rules. During the economic transition process, on the one hand, government and society are working to establish the market economic orders, on the other hand, people do not lay enough importance on market system.So there are contradictions. Besides, the planned economic system and social culture affects the behavior of individuals and enterprises. In this situation, enterprises are facing great uncertainty. Therefore, the questions in front of the researchers are: How do enterprises adapt themselves to such a system transition transformation? What are the characteristics of their behavior during economic transition?Institutions are fundamental factors affecting enterprises. Previous studies showed that in the case of a lack of formal institutions, enterprises often seek other ways for asylum and resources in order to avoid institution risks. Managers, especially senior managers with social ties can bring benefits for firm performance. Previous studies established the relationship between the micro-macro link between two kinds of managerial ties-business tie and political tie-and firm performance, and the moderating roles of ownership and industrial factors. But few studies have investigated how the relationship happens. The interpretation of the mechanisms will no doubt greatly enhance our understanding of this link. This study is trying to uncover the mechanisms between manager's personal ties and overall firm performance.Hence, this research introduces organizational learning and strategic orientation as two mediating variables. It argues that the higher level of managerial ties, the more likely enterprises are to depend on the ties to abtain benefits for the company, ignoring learning of the organization. But organizational learning is the driving force for continuing innovation, dependending too much ties can only bring short-term benefits for the enterprise at the expense of long-term growth. In addition, the higher level of managerial ties, the more likely enterprises are to ingnore environmental changes, resulting enterprises depending too much on existing modes of conservative business strategy. In the intense institutional changing process, enterprises with no long-term goals, short-sighted, too conservative strategic orientation will have their long-term development to be damage eventually. Therefore, organizational learning and the prospector strategic orientation with futurity, proactiveness, and riskness, to a certain extent, can reveal the mechanisms between managerial ties and firm performance.Previous studies confirmed the positive impact of managerial ties on firm performance. But usually, they measure the performance with financial and market indicators. Trying to overcome this deficiency, it measures firm performance with short-term and long-term indicators, and introduces organizational learning and strategic orientation as mediating variables. Specifically, on the one hand, this study hypothesizes that managerial ties can promote short-term performance, but the political ties will damage long-term performance; on the other hand, business ties can promote organizational learning and prospector strategic orientation and, through their mediationg roles promoting firm performance, but political ties lower organizational learning and prospector strategic orientation and, through their mediationg roles reducing firm performance.In the transition research literature, the majority taking managerial ties for granted, but few explore the causes of managerial ties. Few have explored the moderating roles of industry conditions and firm characteristics and so on. This paper argues that in transition economies such as China, the legacy of planned economy, the lack of market institutions, the socio-cultural factors and the combined effect of these may be one of the fundamental reasons that causes high level of managerial ties, as is another problem the study is to solve.In addition, the study found that the institutional environment moderates the relationship between managerial ties and firm performance. With economic transition and the establishment of market institutions, managerial business ties'impact on firm performance will enhance and political ties on firm performance lower, promoting the transition from relational transaction to market transaction.By selecting the eastern, central and western samples of high-tech enterprises, the paper empirically test these hypotheses. The results show that managerial ties do have different impacts on different dimensions of firm performance. Specifically, business and political ties both can promote short-term performance, business ties can enhance long-term performance, but political ties'negative effect on long-term performance has not been verified. As to the mediationg role of organizational learning, the results show that it has positive effect on long-term performance but no effect on short-term performance; business ties promote organizational learning but political ties lower it. Therefore, organizational learning mediates the relationship between managerial ties and long-term performance. In view of the existence of relationship between managerial ties and long-term performance, this mediating is actually partial mediationg. As to the mediationg role of strategic orientation, empirical results show that it has positive effect on long-term performance, but the positive relationship between it and short-term performance is not supported; political ties have negative effect on it, but the positive effect of business ties on it has not been verified. Therefore, the mediationg role of strategic orientation between political ties and long-term performance is verified. In view of non-existence of political ties's effect on long-term performance, the mediating is actually fully mediating. As to the relationship between institutional enviroment and managerial ties, results show that formal and informal institutions have negative effects on managerial ties. As to the moderating role of institutional environment, results show that the higher the institutions the more positive relationship between business ties and long-term performance; while the more negative relationship between political ties and short-term performance. As to the relationship of performance dimensions, that long-term performance has positive effect on short-term performance is verified.It indicates that it is necessary to distinguish different dimensions of firm performance. This further indicates that during the process of economic transition, managerial ties can enhance short-term performance only if they promote long-term performance.The study also reveals the veil between managerial ties and firm performance. Managerial ties have different effects on organizational learning. Business ties promote organizational learning but political ties hinder it, and organizational learning can promote long-term performance. That is, organizational learning mediating the relationship between managerial ties and firm performance. Research also shows that political ties lower the futurity, proactiveness and riskness level of strategy, but they have positive effect on long-term performance. That is, prospector strategic orientation mediates the relationship between political ties and long-term firm performance. These results discover the mechanisms between managerial ties and firm performance, which the literature has not researched.This study validates the institution-embedded of managerial ties. In the transition economies such as China, the research on managerial ties should not focus on the "shallow" variables such as firm and industry characteristics, and more attention should paied on deep institutional variables which has more complicated influence on these ties. Moreover, the institutional environment moderates the ralationship between managerial ties and firm performance, which promote the transition from relational transaction to market transaction.This study also has some practical implications—both for firm managers and government decision makers. Of course, this research inevitably has many deficiencies, such as data, sample size and industry restrictions, future research should pay attention to these problems. The end of this research also pointed out possible research directions in the future.