Darla Moore School of Business, U. of South Carolina, United States
The literature on business-state relations in developing countries traditionally posits a harmonious dynamic, emphasizing benefits such as access to low-cost capital and improved information for firms. This study departs from this consensus, introducing a nuanced perspective by distinguishing political capital into two types: political connections and political embeddedness. Extending resource dependence theory, this research examines when political capital becomes a liability, specifically predicting unilateral power restructuring operations in cases of power imbalances. Focusing on Chinese listed firms, the study investigates their U.S. ADR listing behaviors against the backdrop of the Chinese government's efforts since 2012 to fortify the power of the China Communist Party and temper the influence of market forces. The core question centers on whether firms, when faced with a power-advantageous government, strategically opt for U.S. ADR listing. Empirical findings reveal that firms with substantial political capital are inclined to choose U.S. ADR listing when the government holds a power advantage. However, as this power imbalance intensifies, firms with political connections may deviate from this trend. This study sheds light on the strategic responses to power imbalances, showing how they safeguard their interests by incorporating third-party. The implications contribute to a broader understanding of firms navigating intricate relationships with governments and external markets.