The effects of political connections on entrepreneurial venture operations, employee productivity and investment decisions

Abstract

Purpose

This study aims to examine the effect of political connection on operational efficiencies in the case of small and medium enterprises (SMEs) and to discover the channel through which political ties affect a firm's decision-making process.

Design/methodology/approach

Following the scope of the study, panel fixed effect has been adopted to explore the impact of political connection on a firm's operational efficiencies. The data were collected every two years from 2005 to 2015 from SMEs in Vietnam under the collaboration of the Central Institute for Economic Management (CIEM), the Institute of Labor Science and Social Affairs (ILSSA) and the Development Economics Research Group (DERG) of the University of Copenhagen (Denmark).

Findings

The results suggest that political connection has a significantly negative effect on both investment efficiencies and employee productivity. Significantly, the impact of political connections on employment decisions is more significant than it is on investment decisions. Furthermore, the findings also indicate that high-growth firms experience the interference of political connection in the decision-making process less often than their low-growth peers.

Originality/value

This paper provides some empirical evidence of the negative impact of political connections on a firm's operational efficiencies. It analyzes the channels through which political connection influences a firm's operational efficiencies. Providing empirical evidence demonstrates a dimension to capture the negative side of the political link to small and medium enterprises in developing economies.

Citation

Linh, D.T. (2023), "The effects of political connections on entrepreneurial venture operations, employee productivity and investment decisions", Journal of Small Business and Enterprise Development, Vol. 30 No. 4, pp. 786-803. https://doi.org/10.1108/JSBED-04-2022-0195