How does political capital create value? Evidence from a transition economy

Political capital has received widespread attention from academics and practitioners in diverse disciplines and practical arenas. This paper investigates the mechanism through which political capital affects firm value. Capturing political capital is involved with two processes: accessing capital via building political connections, and mobilizing capital through gaining government assistance. By conducting a filed-based survey of small and medium-sized enterprises (SMEs) in China, we find that the impact of political capital on performance depends primarily on the extent to which the capital can be mobilized. In addition, we consider two moderators that potentially influence the capital-performance relation. Our findings provide support for the proposed moderators, showing that both firms' alignment of governmental objectives on social responsibility and the entrepreneurs' political strategy positively strengthen the relation.