Open Access BASE2022

The innovation paradox of TMT political capital in transition economy firms

Xia, Tianjiao; Liu, Xiaohui

Open Access

Abstract

Does TMT political capital enhance or hinder firm innovation? While both the innovation benefits and costs of TMT political capital are acknowledged in the literature, we lack a systematic understanding of the theoretical context in which each perspective regarding the innovation outcomes of TMT political capital applies, specifically when the institutional environments are subject to fundamental and ongoing changes. Drawing on insights from upper echelons theory (UET), we propose a non-linear relationship between TMT political capital and firm innovation performance. Based on an analysis of 620 publicly listed firms in China, we find that TMT political capital has a U-shaped relationship with innovation performance. This curvilinear U-shaped relationship is negatively moderated by the marketization of commercial activities and resource allocation. Our study evokes new theoretical mechanisms for the innovation paradox of TMT political capital and sheds light on its boundary conditions in the context of transition economies.

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