Multilevel Political Embeddedness and Corporate Strategic Discretion

While social embeddedness can provide the benefits of trust and in turn access to information and resources, it may also create obligations and constrain discretion. We propose to distinguish managerial- from organizational-level social embeddedness as one way to reconcile the conflicting outcomes of embeddedness. We develop this framework in the context of multilevel political embeddedness and corporates’ industry-exit in China’s transitional market. We argue that when top leaders are embedded in the political system through their personal ties, they can utilize the political system to their advantage and their firms are less entangled in the political system to meet the government’s expectations. But when firms are embedded in the political system through top leaders’ political appointment, firms’ discretion is constrained by the government’s expectations despite the benefits received. We found evidence by analyzing industry exits of publicly listed non state-controlled Chinese firms from 2001 to 2009. ...