Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments

Long Range Planning xxx (2016) 1e16

Contents lists available at ScienceDirect

Long Range Planning journal homepage: http://www.elsevier.com/locate/lrp

Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments Yu Gao a, 1, Chengli Shu b, *, Xu Jiang b, 1, Shanxing Gao b, 1, Albert L. Page c, 2 a

School of Economics and Finance, Xi'an Jiaotong University, 74 West Yanta Road, Xi'an, Shaanxi 710061, China School of Management, Xi'an Jiaotong University, No.28, Xianning West Road, Xi'an, Shaanxi 710049, China c College of Business Administration, University of Illinois at Chicago, 601 S Morgan M/C 243, Chicago, IL 60607, USA b

Managerial ties include business ties and political ties, but their individual effects on product innovation remain underexplored in the literature. Integrating social network theory and institution theory, this study first proposes a nonlinear relationship between business/ political ties and product innovation and further examines the moderating roles of a macro-institutional environment (comparing developed with underdeveloped regions where firms are located) and a micro-institutional environment (i.e., market dynamism) in the proposed relationships. Empirical findings generally confirmed our hypotheses that 1) business ties have an inverted U-shaped effect on product innovation whereas political ties have a U-shaped effect; 2) if firms operate in developed regions their business ties have a stronger influence on product innovation, whereas if they operate in underdeveloped regions their political ties have a stronger influence; and 3) market dynamism positively moderates the curvilinear relationship between business/political ties and product innovation. © 2016 Elsevier Ltd. All rights reserved.

Introduction Product innovation is a process that brings a new technology or combination of technologies to a target market (Dougherty, 1992; Lukas and Ferrell, 2000). To succeed in product innovation, external knowledge acquisition is as important as internal knowledge accumulation and creation (Cohen and Levinthal, 1990; Zahra and George, 2002; Li and Calantone, 1998). China's institutional transition has left firms with a vast under-explored market regime to conquer (Yi et al., 2012), yet the associated institutional void, namely the lack of developed factor markets, market intermediaries, and effective contract-enforcing mechanisms (Khanna et al., 2005), limits knowledge acquisition via the conduit of market transactions (Wright et al., 2005). Managerial ties, that is, senior managers' external relationships with the business community (hereafter business ties) and government and regulatory officials (hereafter political ties) (Peng and Luo, 2000), could be effective complementary conduits for acquiring external resources and knowledge. Studies in the extant literature have extensively examined the facilitating effects of managerial ties on firm performance in the areas of strategy (Peng and Luo, 2000; Li et al., 2008; Zhang and Li, 2008; Acquaah, 2007), international business (Li et al., 2009; Luo, 2003), and marketing (Gu et al., 2008; Sheng et al., 2011), but have paid inadequate attention to their effects on product innovation. The effects of managerial ties have been extensively addressed from the social network perspective. In particular, managerial ties enable firms to form relational networks with the business and political communities (Peng and Luo, 2000; Park and Luo, 2001). Moreover, connected firms have to exchange favors with their relational partners because network members should behave in a reciprocal and cooperative manner to maintain the existence and function of the networks (Nee, 1998; Peng and Luo, 2000). Therefore, managerial ties contain a “bitter” side (i.e., obligations, indebtedness, and cultivation costs) and a “sweet” side (i.e., informational, intellectual, governing, and supporting benefits) (Brass et al., 2004; Nie et al.,

* Corresponding author. Fax: þ86 29 82668700. E-mail addresses: [email protected] (Y. Gao), [email protected] (C. Shu), [email protected] (X. Jiang), [email protected] (S. Gao), [email protected] (A.L. Page). 1 Fax: þ86 29 82668700. 2 Fax: þ1 312 996 3559. http://dx.doi.org/10.1016/j.lrp.2016.11.005 0024-6301/© 2016 Elsevier Ltd. All rights reserved.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

2

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

2011; Noordhoff et al., 2011). The social network literature describes the cultivation and utilization of managerial ties as an “imbalanced” and “give-first” game. In particular, firms have to invest first in the expectation of an unequal return at a later stage (Marquis and Raynard, 2015; Puffer et al., 2010). The degree of inequity between investment and return depends on the extent of the power imbalance and the degree of trust between a firm and its relational partners (Sun et al., 2012). The institutional literature adds to this line of inquiry in several ways. First, it reveals the origins of the “bittersweet” effects. Managerial ties “produce institutional elements,” and they “in general can lead to institutionalization” (Zucker, 1987, pp. 453e454) of collective norms such as reciprocity, trust, and cooperation (Dahan et al., 2006). Thus, managers must adopt shared norms and rules to play the game well (Marquis and Raynard, 2015). Second, institutional theory reveals the rationale behind the bittersweet effects tradeoff. During the institutionalization of collective norms, bitter effects emerge when firms are obligated to comply with these norms and behave in a loyal and reciprocal manner even at the expense of individual competencies and benefits (Park and Luo, 2001). Only when firms' relational partners comprehend those norms and begin to conform can they taste the sweetness, and the degree of the power imbalance determines the fairness and timeliness of that sweetness (Shi et al., 2014; Sun et al., 2012). Third, the institutional research delineates the dynamics of the bittersweet effects tradeoff. The ongoing institutionalization process dilutes the influence of the power imbalance and decreases the associated cultivation costs for firms but increases their felt constraints (Marquis and Raynard, 2015). Although social network theory and institutional theory can complement each other to explain the bittersweet effects of managerial ties on the interested firm outcomes, previous studies have rarely integrated these two theoretical perspectives to depict a more complete picture of the complex bittersweet effects of managerial ties on product innovation. More importantly, managerial ties are developed as a relational mechanism that can complement the weakness of formal institutions (Li et al., 2008; Sun et al., 2010), and their effectiveness relies inherently on the institutional environments in which a firm operates (Brass et al., 2004; Marquis and Raynard, 2015; Shi et al., 2014; Sun et al., 2012). Institutions are multifaceted (Greenwood et al., 2011) and their influence on the effects of managerial ties is constituted by the confluence of interacting and co-integrated “qualitatively different effects” arising from distinct institutional elements (Batjargal et al., 2013, p. 1025). Institutional infrastructures determine the necessity and potential value of managerial ties (Peng, 2003; Holmes et al., 2013), while institutional norms and rules shape the dominance and prominence of relational norms that govern behaviors in the relationship between a business and regulatory agents (Scott, 2013). Previous research offers snapshots of the influences of individual environmental factors, such as political factors (e.g., enforcement inefficiency) and economic factors (e.g., demand uncertainty) (Li et al., 2008; Li and Sheng, 2011; Sheng et al., 2011). Yet it still lacks an investigation that addresses the confluence of the individual influences of multifaceted institutions on the managerial tieseproduct innovation link. Moreover, the institutional environments in which firms are embedded involve hierarchies (Griffith, 2010; Kostova and Roth, 2003) and “the macro-level institutional environment is not reducible to lower-level industrial environments” (Meyer and Rowan, 1977, p. 341). At the macro level, geographical regions in which firms reside have their own distinct economic, political, and social institutions (Chan et al., 2010). As such, regions where firms are located can serve as proxies for macro-level institutional environments which “directly determine what arrows a firm has in its quiver” (Ingram and Silverman, 2002, p. 20) and significantly affect the foundations of firm operations. At the micro level, interactions between market players directly shape how firms play within the rules and conform to the associated norms (Gao et al., 2015). Market dynamism, “the rate of change in customers' preferences and competitors' actions” (Maltz and Kohli, 1996, p. 52), could play such a role as a micro-level institutional environment. Unfortunately, previous research has largely neglected the role that hierarchical institutional environments play in the managerial tieseproduct innovation link, failing to acknowledge the specific influential mechanisms of those hierarchies. To address these limitations, this study integrates institutional theory and social network theory to investigate the evolving bittersweet effects of managerial ties on product innovation and the moderating effects of firms' macro- and microinstitutional environments. At the macro level, regional development level (developed versus under-developed regions in which firms are located) is used to reflect the unequally transitioned regional institutional environments caused by imbalances in governmental decentralization, marketization, and globalization (DMG) in China (Bao et al., 2002; Chan et al., 2010). A high level of regional development indicates relatively developed local economic and political institutions and highly transitioned social institutions. At the micro level, market dynamism reflects industrial institutional environment that describes interactions between market players in the competitive game in which firms are engaged. Our empirical context, China, is in the midst of an ongoing institutional transition characterized by rapid and unbalanced DMG processes (Hoskisson et al., 2013), which has resulted in vast regional inequities in terms of economic, political, and social institutions (Tsui et al., 2004), and a high-velocity business environment with considerable embedded market dynamism (Li et al., 2005; Sheng et al., 2011). Thus, China provides a comprehensive research setting in which to examine the direct effects and institutional boundaries of managerial ties on product innovation. This study contributes to the social network research and managerial ties literature by illustrating the bittersweet nature of managerial ties and delineating the evolving bittersweet tradeoff to investigate their nonlinear effects on product innovation. It also contributes to institutional theory by interpreting the moderation effects of hierarchical institutional environments on the managerial tieseinnovation link, which adds knowledge to the nascent themes of “institutional polycentrism” and “within-country institutional inequality” in institutional research.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

3

Theory and hypotheses The bittersweet effects of managerial ties Institutional infrastructures support firms' business transactions (Chan et al., 2010; North, 1990). Economic institutions include market intermediaries that disseminate information among transaction parties (Khanna and Rivkin, 2001) and factor markets that provide physical and intellectual resources (North, 1990). Political institutions comprise the legal and regulatory systems that govern and protect business transactions (Chan et al., 2010), and social institutions determine what behavior is acceptable and set the desired levels of trust and reciprocity among members (Peng et al., 2009). Based on social network theory and institutional theory, studies in the extant literature legitimize the roles of managerial ties, explicate their bittersweet nature, and delineate their evolving bittersweet tradeoff. Managerial ties are developed as a strategic response, since the “institutional voids [in China] force managers to rely on personal ties and connections to substitute for formal institutional support (Li et al., 2008, p. 384)”. Therefore, such ties provide “the basis for trust and identity in close-knit groups, and informal norms [enable] actors to engage in collective action to realize their preferences and interests” (Nee, 1998, p. 86), enabling firms to reduce transaction costs and increase the transaction value of their business exchanges (Luo, 2003). Managerial ties are bittersweet in nature, and their actual effects are the result of the tradeoff between their bitter and sweet sides (Noordhoff et al., 2011; Nie et al., 2011). To taste the sweetness of managerial ties, firms have to 1) acknowledge and learn embedded norms (Sun et al., 2012), 2) initiate and cultivate certain kinds of managerial ties with specific embedded norms (Brass et al., 2004), and 3) maintain and sustain such ties by complying with the embedded norms to acquire legitimacy in a network (Shi et al., 2014). More importantly, the cultivation and utilization of managerial ties creates an “imbalanced” and “give-first” game (Jansson et al., 2007; Shi et al., 2014; Sun et al., 2012). A firm provides favors first to increase the possible returns from recipients of the favors in the long run (Sun et al., 2012). Those returns may not be equal to the initial favors, instead depending on the power imbalance between a firm and its relational partners (Marquis and Raynard, 2015; Sun et al., 2010). For instance, given the relatively superior power status of political actors in China, the initial cost of ties with them is considerably higher than the return (Sun et al., 2012). Moreover, the cost-benefit tradeoff is shaped by the extent of the institutionalization of collective norms during the cultivation of managerial ties (Marquis and Raynard, 2015). The strengthening of managerial ties may decrease firms' cultivation costs and gradually mitigate the unfairness of the power imbalance, yet it also tightens the constraints those collective norms impose on firms' behavior (Shi et al., 2014). Managerial ties and product innovation Business ties comprise senior managers' personal connections with the managers of customer, competitor, and supplier firms, while political ties represent managers' personal connections with government officials and the leaders of industry agencies and regulatory bureaus (Peng and Luo, 2000; Sheng et al., 2011). Given the diverse relational partners involved in these two types of ties, the derived sweetness and associated bitterness as well as the evolving bittersweet tradeoff vary accordingly, leading to divergent effects on product innovation. Business ties have their sweet side. First, their informational benefits provide firms with timely and comprehensive information on current market conditions (Peng and Luo, 2000), based on which they can better understand their current market segments and predict emerging technical and market opportunities for product innovation (Zhou and Li, 2012). Second, their intellectual benefits provide firms with complementary or new knowledge that expands the depth and breadth of firm-level knowledge (Li and Sheng, 2011) and facilitates the generation of product innovation ideas (Carlo et al., 2011). The intellectual benefits to firms also encompass the professional talent and managerial experience of other firms (Peng and Luo, 2000), which help focal firms modify and improve their internal routines and managerial practices (Bao et al., 2012) and enable them to innovate in a more effective and cost-efficient way (Kim and Atuahene-Gima, 2010). Third, their governing benefits decrease transaction costs (Park and Luo, 2001). The governing benefits of business ties also deepen the extent and widen the scope of inter-firm communication of technological knowledge, market information, and managerial experience (Atuahene-Gima and Murray, 2007). Business ties also have a bitter side. First, to cultivate, maintain, and strengthen business ties, firms must invest a considerable amount of managerial attention and resources (Peng and Luo, 2000), which might distract them from pursuing other operational activities. Second, for the purpose of gaining benefits, firms must behave in ways that comply with embedded norms, which may lead to the loss competencies and opportunities (Park and Luo, 2001). However, because business ties link firms with business players that have similar norms and are relatively substitutable (Gao et al., 2015), there is a trivial power imbalance in such connections, leading to relatively low cultivation and strengthening costs and a timely and fair favor-giving and benefit-receiving process. Therefore, business ties may influence product innovation in the following manner. As the strength of business ties increases from a low to moderate level, the gradually institutionalized collective norms of reciprocity, trust, and cooperation may increase the governing benefits of those ties (Nee, 1998), thereby enhancing the potential informational and intellectual benefits for product innovation. However, when business ties strengthen beyond a certain point, those collective norms impose heavier constraints. In particular, the increasingly heavy obligations of loyalty and reciprocity (Park and Luo, 2001) 1) increase the flow of tacit information and knowledge from a firm to its relational Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

4

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

partner, leading to unintended knowledge leakage (Gu et al., 2008); and 2) prevent firms from searching for new relational partners, thereby hampering the acquisition of novel information and knowledge (Li and Sheng, 2011). Therefore, the constraints that business ties impose will gradually override the benefits they provide. Thus: H1.

Business ties have a curvilinear (inverted U-shaped) relationship with product innovation.

The sweet side of political ties includes the following. First, their informational benefits provide firms with “inside information” on to-be or newly implemented policies and rules that may shape market conditions and generate new opportunities (Sheng et al., 2011). Thus, firms can “be among the first to learn of new government regulations” (Ang, 2000, p. 47) and be able to sense and respond to product innovation opportunities as they emerge. Second, their intellectual benefits connect firms with research institutions (Xu et al., 2012), allowing them to obtain novel technology and scientific knowledge (Tellis et al., 2009) and thereby improve the diversity and depth of their knowledge pools (Carlo et al., 2011) to trigger the creation of novel technology (Zhou and Li, 2012). Third, their supporting benefits provide firms with financial support (e.g., subsidies), favorable policies (e.g., tax reductions), and privileges (e.g., permission to enter) that shelter them from competition and enable them to engage in product innovation (Gao et al., 2015; Li and Atuahene-Gima, 2001). Political ties also inevitably include a bitter side. First, because firm managers and government officials operate in separate institutional domains, political ties may involve considerable costs (e.g., time, effort, resources) as firms learn and understand the norms embedded in their relational networks with government officials (Appelbaum et al., 2001). Second, compared with business firms, government actors have superior institutional power and high non-substitutability, which results in a considerable power imbalance between firms and government officials (Shi et al., 2014). That power imbalance influences the timing and equality of the give-and-take process, as it may take a long time for government officials to build trust in firms (Sheng et al., 2011). In particular, to obtain the valuable benefits (e.g., exclusive policies, privileges) of political ties, firms must demonstrate that they are trustworthy and faithful (Sun et al., 2012). Thus, firms may have to make short-term sacrifices and receive unequal returns in the short run (Shi et al., 2014). Therefore, political ties may influence product innovation in the following manner. As the strength of political ties increases from a low to a moderate level, the costs of establishing and strengthening those ties and learning the associated norms may compete with product innovation projects for firms' limited managerial attention and resources (Park and Luo, 2001). However, once firms have built relatively strong political ties and comprehend the embedded norms and rules, the cultivation and maintenance costs of those ties decrease (Shi et al., 2014). More importantly, the institutionalized collective norms of reciprocity and trust may motivate government officials to grant favors (Marquis and Raynard, 2015), and firms may even enjoy opportunities to obtain valuable benefits that enable them to explore exclusive opportunities as political ties strengthen (Luo, 2003), thereby improving their capacity to engage in product innovation. Therefore: H2.

Political ties have a curvilinear (U-shaped) relationship with product innovation.

The moderating role of institutional environments Institutional environments exert considerable influence on firm behavior (North,1990; Scott,1995), which can be interpreted from both economic and sociological perspectives. The economic view delineates how economic, political, and social institutions support or inhibit a certain type of firm activity by creating infrastructures (Chan et al., 2010; North, 1990). The sociological view explains how normative, regulative, and cognitive institutions determine the extent to which certain activities are perceived as “right” (regulative influence), “preferred” (normative influence), and “suitable” (cognitive influence) (Scott, 1995). A firm's cultivation and utilization of managerial ties takes place within a particular local and market environment, and is thus inherently subject to the influences of hierarchical institutional environments (Kostova and Roth, 2003; Griffith, 2010). More specifically, firms locate in geographic regions that have distinct local institutional elements (Chan et al., 2010), which constitute the macrolevel institutional environments that structure the foundations of the cultivation and utilization of managerial ties. Firms also operate in markets in which they interact with other actors by following the “rules of the game” (Teece, 2007), such market constitutes the micro-level institutional environment that may directly shape the cultivation and utilization of managerial ties. The moderating role of regional development level After more than 30 years of rapid, experiential, and uneven economic and political transitions, “economic, political, and social institutions vary across regions within host countries [China]” (Chan et al., 2010, p. 1229). Compared with the mountainous central and western provinces of China, the eastern and coastal provinces have transportation facilities that are more favorable to the development of export businesses (Bao et al., 2002). As the country's economic growth depends heavily on absorbing foreign direct investment (FDI) and developing export-oriented manufacturing industries, the coastal and eastern provinces have benefited from preferential policies (e.g., open-door policy, special economic zones, deregulation) adopted by the central government (Demurger et al., 2002). The more advanced infrastructures and governmental policies have greatly boosted local economies and advanced the pace of political reform in the eastern and coastal provinces (Sakamoto and Islam, 2008). Hence, compared with their central and western counterparts, China's eastern and coastal provinces have more highly developed economic and political institutions that support business transactions (Li and Qian, 2012; Chan et al., 2010) and offer firms effective and transparent regulations and law enforcement (Li and Qian, 2012). In addition, the social institutions in these provinces have made the transition from the conservative relational approach to a Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

5

relatively modern, arm's-length approach to business transactions (Walsh et al., 2009). Therefore, it is reasonable to classify China's coastal and eastern provinces as developed regions and the middle and western provinces as underdeveloped regions, and to regard regional development levels (developed or underdeveloped) as macro-level institutional environments that alter the effects of managerial ties on product innovation. In terms of the infrastructural influences on the effects of business ties, the developed regions have advanced economic institutions that equip firms with relatively abundant knowledge and capital storage (Chan et al., 2010). Thus, the value of the potential benefits (physical and intellectual resources) that a firm can obtain from its relational partners is increased (e.g., more abundant resources and advanced knowledge). As for the behavioral influences on those effects, the relatively mature political institutions in these regions provide effective protection for market transactions (Wright et al., 2005), and the more fully transitioned social institutions further legitimize the role of the arm's-length approach. Firms in the developed regions may have greater ability to acquire the resources and knowledge needed for internal product innovation via formal market transactions (Chan et al., 2010). However, the declining popularity of business ties does not necessarily diminish their value. Within the relatively established market economy of the developed regions, the relational mechanism can function as an effective lubricant for business transactions (Peng, 2003), thus increasing its importance owing to its rarity (Gao et al., 2015). Moreover, the tacit knowledge and information and the state-of-the-art expertise that may significantly encourage product innovation are more likely to flow from business ties than from formal business transactions (Park and Luo, 2001). Therefore: H3. Business ties have a greater influence on product innovation in the developed regions than in the underdeveloped regions in China. In terms of the infrastructural influences on the effects of political ties, in the developed regions the more advanced local economic institutions equip local governments with abundant financial and intellectual resources with which to develop local economies (Shi et al., 2014). However, the relatively mature and transparent political institutions constrain the individual power of government officials, thereby limiting the potential favors they can offer to firms (Sun et al., 2012). Regarding behavioral influences, the promotion of political officials in the developed regions is tightly bound to the development of local economies (Du et al., 2008), which motivates government officials to serve local firms in a relatively fair manner and fosters economic growth for the purpose of advancing political careers (Shi et al., 2014). Due to concerns over potential punishment for abuses of power and the desire to advance their political careers, government officials may be less willing to grant favors to their business friends in the developed regions. Therefore, infrastructural and behavioral influences may significantly decrease the actual value of a firm's political ties, thus limiting their effects on product innovation. As a result: H4. Political ties have a weaker influence on product innovation in the developed regions than the underdeveloped regions in China.

The moderating role of market dynamism Market dynamism reflects interactions between market players. A dynamic market is characterized by rapidly changing consumer needs and unpredictable competitor movements, both of which add uncertainty to firms' prospects and create competitive pressures (Li and Sheng, 2011). Thus, market dynamism substantially shapes the competitive game that firms must play and exerts infrastructural and behavioral influences on the relationship between managerial ties and product innovation. Infrastructural influences change the actual value of the informational, intellectual, supporting, and governing benefits that firms derive from their managerial ties. Regarding behavioral influences, the uncertainties and pressures of the market environment may heighten managers' safety concerns and amplify their “path-sticking” bias (Bao et al., 2012). In this situation, the effects of the encouragements and constraints associated with managerial ties are strengthened. We first consider infrastructural influences on the effects of business ties. Market dynamism escalates the importance of firms' interpretation of market trends and their ability to predict or identify innovation opportunities (Zhou and Li, 2012), in turn strengthening the effects of informational benefits (i.e., timely and comprehensive market information) on product innovation. Second, in the presence of intensified market competition, firms have limited time and space in which to govern their business transactions (Li and Sheng, 2011), strengthening the effects of governing benefits on product innovation. Behavioral influences may, in contrast, worsen the constraints imposed by excessive business ties. Excessive business ties trap firms in their current business networks, restrict them to current market segments (Park and Luo, 2001), and prevent them from modifying their product lines or exploring new technical and market opportunities (Bao et al., 2012). In a dynamic market, such constraints are exacerbated by managers' path-sticking bias, and they make it more difficult for firms to obtain the novel informational and intellectual benefits that are vital for product innovation in such a market (Li and Sheng, 2011). Thus, in a dynamic market, when business ties increase from a low to a moderate level, their sweet effects (i.e., informational, intellectual, and governing benefits) on product innovation increase faster than those in a stable market. Yet the constraints of excessive business ties (i.e., indebtedness, blindness) also tighten, making the negative effects from the constraint side increase faster than those in a stable market. Thus: H5. Market dynamism positively moderates the relationship between business ties and product innovation such that the inverted U-shaped effects of business ties on product innovation are stronger when the degree of market dynamism is high rather than low. Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

6

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

We now turn to infrastructural influences on the effects of political ties in a dynamic market. First, although the informational benefit of political ties may not directly contribute to firms' understanding of their market conditions, it can facilitate the prediction of industry trends and lead to the discovery of potential innovation opportunities (Carlo et al., 2011). Second, in dynamic markets with relatively short product lifecycles, the intellectual benefits of political ties can help firms predict technological directions and improve the success rates of product innovation (Sheng et al., 2011). Third, under competitive pressure, firms generally lack the resources they need to survive and thrive (Peng, 2003), which strengthens the effects of the supporting benefits. Behaviorally, compared with firms that do not enjoy such benefits to alleviate their resource burdens and predict market and technological trends through political ties, firms that do enjoy them may perceive themselves as superior to and safer than their counterparts (Gao et al., 2015). The combination of these influences renders firms more capable of engaging in product innovation and more highly motivated to do so (Tellis et al., 2009). However, the damage arising from initialization and cultivation costs is also greater in a dynamic market. As noted above, given the heavy resource burden that competitive pressures impose on firms, it becomes more difficult for firms to invest managerial attention and internal resources in both the cultivation of political ties and product innovation (Sun et al., 2012). Thus, the “resource-competing” effects of political ties on product innovation become more salient. In a dynamic market, when political ties increase from a low to a moderate level, the bitter effects of the associated initialization and cultivation costs on product innovation increase faster than they would in a stable market. However, the sweet effects (i.e., informational, intellectual, and supporting benefits, exclusive opportunities) of strong political ties are also greater in such a market, meaning that the positive effects accruing from those ties also increase faster than those in a stable market. Thus: H6. Market dynamism positively moderates the relationship between political ties and product innovation such that the U-shaped effects of political ties on product innovation are stronger when market dynamism is high rather than low. Methodology Data collection process We conducted empirical research in China's information and communication, manufacturing, energy, and chemicals industries. Sample firms represented a range of ownership structures, such as state-owned and controlled enterprises (SOEs, 45%), privately owned and controlled enterprises (35%), joint ventures (11%), and FDIs (9%). We carried out face-to-face interviews to obtain reliable and valid data (Hoskisson et al., 2000) and used the translation and back-translation technique to maintain the cross-cultural equivalence of the interview questionnaire (Douglas and Craig, 2006). Personal interviews with ten managers were conducted to gather suggestions on the design, wording, clarity, and appropriateness of the survey instrument. On the basis of these interviews, the questionnaire was further refined and finalized. A three-stage process was adopted to collect the data from the final survey. First, because China is a large country in which the pace of DMG varies by region (Bao et al., 2002; Tsui et al., 2004), 21 out of 31 provinces in mainland China were chosen according to their locations: the Eastern and Coastal Region (10 provinces), the Middle Region (5 provinces), and the Northwestern Region (6 provinces). This segmented sampling method reflects the entire landscape of China and decreases regional bias. For each province, 100 firms were chosen randomly from the published Yellow Pages, resulting in a sample frame of 2100 firms. Second, eight experienced interviewers placed calls to firms to contact executives who were familiar with those firms (job titles included CEO, chief marketing officer [CMO], and chief technology officer [CTO]). The interviewers informed the managers of the purpose of the project and promised them confidentiality to solicit their cooperation. The interviewers also promised them a small gift (a pen bearing the logo of the university) and a summary report on request in return for their participation. Through this effort, 530 firms agreed to participate in the research. Third, professional interviewers were sent to the firms to conduct face-to-face interviews using the structured questionnaire. In total, 308 questionnaires were returned and the interviews lasted 35 min on average. After eliminating 38 responses with excessive missing data, we obtained 270 questionnaires for the final analysis with a valid response rate of 50.9% (270/530). The respondents included CEOs (41%), vicepresidents of marketing (15%), CMOs and CTOs (32%), and managers from other marketing-related departments (12%). We believe that the informants were able to provide pertinent information about the survey questions. Among the 270 firms across 21 provinces, 137 were located in the developed regions and 133 were located in the underdeveloped regions. Therefore, the final sample represents the full range of Chinese businesses. To test for non-response bias in stage one and stage two, t-tests were performed to compare participating firms with nonparticipating firms in terms of industry, number of employees, and sales growth (Armstrong and Overton, 1977). Test results indicated that there were no statistically significant differences between the firms (p < .05). Measures All of the constructs were measured with multi-item scales, and all items were randomly ordered to minimize survey method bias. Each of the scale items used a Likert-type response format ranging from 1 (“strongly disagree”) to 7 (“strongly agree”). All measures are presented in the Appendix. Managerial ties. The measures of business ties and political ties were adopted from Peng and Luo (2000). The scales capture the extent to which firms' top managers have established good connections with managers in other firms, such as customers, Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

7

competitors, and suppliers (business ties), and with government officials and leaders of industrial agencies as well as regulatory and supporting organizations (political ties). The Cronbach's alphas for the two three-item scales were .790 and .859, respectively. Market dynamism. A four-item scale was adopted from Pelham and Wilson (1996) and one cross-loaded item was dropped during factor purification. The Cronbach's alpha for the three-item scale was .672, close to .70 and deemed appropriate (Peterson, 1994). Regional development level. Following studies in the extant literature (Bao et al., 2002; Wei, 2005), this research used geographical location to reflect regional development level. The Eastern and Coastal provinces represent the developed regions while the Northwestern and Middle provinces represent the underdeveloped regions (Chen and Fleisher, 1996; Kanbur and Zhang, 2005). We further assessed the categorization of economic conditions based on this distinction. According to the China Statistical Yearbook 2008, the ten provinces in the developed regions (Liaoning, Beijing, Tianjin, Hebei, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, and Guangdong) were ranked at the top in both GDP and GDP per capita in 2007; the 11 provinces in the underdeveloped regions (Ningxia, Shanxi, Shaanxi, Henan, Gansu, Anhui, Sichuan, Chongqing, Jiangxi, Guizhou, and Yunnan) were ranked low. Product innovation. This research focused on firm-level product innovation. Lukas and Ferrell's (2000) scale was adapted to reflect product innovation that firms have developed and introduced based on their own existing or newly developed technologies and knowledge. Four items remained after purification and the Cronbach's alpha was .701. Control variables. We controlled for several factors that might influence a firm's ability to develop product innovation (Hurley and Hult, 1998): firm size, firm age, R&D employee ratio, firm ownership, and industrial sector. Firm size was measured as the natural logarithm of the number of employees in 2007 because the extant literature provides inconsistent results on the effect of firm size on product innovation (Kotabe and Swan, 1995). Firm age was measured as the natural logarithm of the number of years that a firm has been in operation. Sørensen and Stuart (2000) indicate that, when firms get older, they may experience an increasing rate of innovation or become less innovative and less capable of responding to the external environment. R&D intensity was measured as the ratio of the number of R&D employees to the number of all employees, since firms with higher R&D intensity tend to have a higher propensity for product innovation (Santarelli and Sterlacchini, 1990). Firm ownership was measured using a dummy variable that was coded as 1 for SOEs and 0 for others because a firm's ownership structure may influence its propensity to innovate (Shu et al., 2012). The industrial sector was measured by a dummy variable that was coded as 1 when firms were in a high-technology industry and 0 when they were in other industries. Analysis and results Table 1 reports the descriptive statistics, correlations, and the square root of the average variance extracted (AVE) for each latent variable in this research. Construct validity and reliability We used structural equation modeling (SEM) implemented by AMOS (16.0) software with maximum-likelihood estimation to assess the unidimensionality and validity of the measures. The measurement model fitted the empirical data well (the ratio of c2 to the degree of freedom was 2.22, p < .001, GFI ¼ .932; CFI ¼ .935, RMSEA ¼ .067, SRMR ¼ .056, AIC ¼ 195.065). Moreover, in the four-factor measurement model, all the indicators were significantly loaded on the variables which they were supposed to reflect (the smallest critical value was 5.784 with p < .001). These results revealed preliminary support for the convergent validity, discriminant validity, and unidimensionality of each variable (Joreskog and Sorbom, 1993). Together with the Cronbach's alphas (all exceeded .70 except that for market dynamism), good internal consistency was indicated.

Table 1 Descriptive statistics and correlations of full sample (n ¼ 270). Variable

Mean

S.D.

1

2

3

4

5

6

7

8

9

1. Political ties 2. Business ties 3. Market dynamism 4. Product innovation 5. Firm age 6. Firm size (log) 7. Ownership 8. High-technology 9. R&D employee ratio 10. MV marker (Respondent age)

4.89 5.00 4.42 5.16 1.13 2.78 .44 .06 .15

1.13 1.34 1.16 .93 .39 .85 .50 .24 .17

1 .39** .09 .13* .08 .12* .16** .13 .13 .01

.39** 1 .25** .30** .03 .02 .07 .04 .07 .09

.10 .26** 1 .32** .10 .05 .14 .20** .05 .02

.14* .31** .32** 1 .04 .16** .14 .16** .19** .03

.11 .03 .07 .08 1 .47** .39** .08 .17* .07

5* .05 .08 .19** .49** 1 .29** .09* .19* .12

.19** .03 .10 .11 .41** .31** 1 .28** .16* .17*

.09 .07 .23** .18** .05 .12* .24** 1 .27** .02

.09 .10 .08 .22** .13* .15* .13* .30** 1 .06

*p < .05. **p < .01. Notes: N ¼ 270. Off-diagonal elements are the correlations of the variables and the adjusted correlations for potential common method variance (Lindell and Whitney, 2001) are above the diagonal.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

8

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

Two further methods were used to assess the discriminant validity of the measures. First, pair-wise Chi-square tests were conducted for all the variables to examine whether the constrained and unconstrained models were significantly different. The results supported discriminant validity because all the Chi-square difference tests were significant (the smallest: Dc2 ¼ 10.498, df ¼ 1, p < .001). Second, the square roots of the AVEs for all the reflective variables were compared with the correlation coefficients in Table 1. Discriminant validity was again supported since the square roots of the AVEs were higher than the correlation coefficients in the corresponding rows and columns (Fornell and Larcker, 1981). Since the empirical data were reported by a single respondent in each firm, common method bias was tested using three techniques. First, a Harman's single-factor test was conducted using exploratory factor analysis (EFA) without rotation (Podsakoff et al., 2003) to check the factor structure of the studied variables. The results revealed that four factors emerged with eigenvalues greater than 1 (3.719, 2.128, 1.366, and 1.273, respectively). The total variance explained by these four factors was 65.27% (28.61%, 16.37%, 10.51%, and 9.79%, respectively). In this case, there was no overwhelming factor. However, Podsakoff et al. (2003) also identify a potential problem that the method of the Harman's single-factor test may cause: “the likelihood of obtaining more than one factor increases as the number of variables examined increases, thus making the procedure less conservative as the number of variables increases” (Podsakoff et al., 2003, p. 890). Thus, second, as Podsakoff et al. (2003) suggested, we employed a single-factor technique by adding a common method variance (CMV) variable, a firstorder factor with all of the scale items of the variables as indicators, to the measurement model (Podsakoff et al., 2003). The results suggested that model fit was improved but the variance explained by the newly added CMV variable was .299, below the recommended cutoff value of .500, suggesting that common method bias was unlikely a concern in this study (Hair et al., 1998; Podsakoff et al., 2003). Third, we employed the marker variable method. As Lindell and Whitney (2001) suggest, CMV can be assessed by identifying a marker variable that is not theoretically related to at least one other variable in the research model. Thus, respondents' age was used as the marker variable. According to the results shown in Table 1, the marker variable was not significantly related to any of the variables in the model. Moreover, the correlations between the constructs that were hypothesized to be significant remained significant after controlling for the effect of the marker variable. In summary, the result of a Harman's single-factor test, the value extracted by the potential CMV variable, and the result of the marker variable test indicated that common methods bias was not a serious problem. Hypotheses testing and results We performed moderated regression by using the optimal scaling method to test H1, H2, H5, and H6. In our questionnaire, all multi-item measures of independent variables and moderating variables were based on 7-point Likert scales. Thus, such a method is more suitable for incorporating these ordinal categorical variables into our calculations. In addition, the method we used can iterate to find a best-regression model (Chen et al., 2015; Zhang and Zhang, 2003). To mitigate the potential threat of multicollinearity, we mean-centered all independent variables that constitute interaction terms and then created interaction terms by multiplying the relevant mean-centered variables (Aiken et al., 1991). Moreover, the largest variance inflation factor (VIF) that indicates the existence of multicollinearity was 2.18, well below the 10.0 cutoff, so multicollinearity was not a concern (Li et al., 2008; Sheng et al., 2011). Table 2 shows the results of the three-step regression (Aiken et al., 1991). First, we added the control variables into the model; second, we added the independent variables and their squared terms; third, we added the moderation variable, its interactions with the independent variables, and its interactions with the squared terms of the independent variables. F tests were also conducted to examine the significance of R-square changes in the models and the results suggested that the newly added variables explained a significant extent of variance in the dependent variable. In addition, H3 and H4 were tested by using subgroup analysis, for three reasons. First, this study hypothesized that the developed and underdeveloped regions would differ by nature rather than by degree. Second, Venkatraman (1989, p. 426) suggests that if there is no joint effect between the independent variable (business ties, political ties) and the moderator variable (level of regional development), subgroup analysis rather than moderated regression analysis should be used. Third, since the relationships between managerial ties and product innovation were hypothesized as curvilinear, subgroup analysis is a superior method for testing differences between regression coefficients in distinct groups. Following the steps suggested in subgroup analysis (Cohen et al., 2002; Hitt et al., 1997), subgroup regression analyses were run first to estimate the coefficients of managerial ties and managerial ties squared separately. Z-statistic tests were then employed to determine whether the coefficients were significantly different across subsamples. Results from the subgroup analysis are shown in Table 3. In H1, we predicted that business ties would have a curvilinear (inverted U-shaped) relationship with product innovation. The results for the Step 2 model shown in Table 2 supported H1 (b ¼ .199, p < .001 for business ties and b ¼ .151, p < .01 for the squared term of business ties, respectively). H2 was also supported (b ¼ .251, p < .001 for political ties and b ¼ .279, p < .001 for political ties squared), so the U-shaped relationship between political ties and product innovation was confirmed. The results of the subgroup analysis shown in Table 3 were used to test H3 and H4. First, in the underdeveloped regions, the relationship between business ties and product innovation was U-shaped (b ¼ .311, p < .001 for business ties and b ¼ .313, p < .01 for business ties squared), while the relationship between political ties and product innovation was inverted U-shaped (b ¼ .455, p < .001 for political ties and b ¼ .437, p < .01 for political ties squared). Second, in the developed regions, the relationship between business ties and product innovation was inverted U-shaped (b ¼ .374, p < .001 for business ties and b ¼ .142, p < .05 for business ties squared), while the relationship between political ties and product innovation was Ushaped (b ¼ .225, p < .05 for political ties and b ¼ .315, p < .01 for political ties squared). In order to test the differences in the Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

9

Table 2 Results of regression analysis from the whole sample (n ¼ 270). Variables

Whole sample models Step 1

Control variables Firm age Firm size Ownership (dummy) High-tech sector (dummy) R&D intensity Direct effects Business ties Business ties' square Political ties Political ties square Market dynamism (MD) Interactions Business ties*MD Business ties square*MD Political ties*MD Political ties square*MD R2 Adjusted R2 △R2 F-value þ

*

**

Step 2

b

VIF

CI

.11 .21** .18** .07 .23***

1.45 1.44 1.34 1.26 1.17

.07 .07 .31 .06 .11

.29 .34 .05 .19 .36

.14 .12

Step 3

b

VIF

CI

.11 .21** .17** .01 .24***

1.46 1.46 1.37 1.29 1.19

.02 .09 .29 .12 .12

.20*** .15** (H1)b .25** .28*** (H2)

1.26 1.13 1.44 1.29

.09 .27 .11 .13

b

VIF

CI

.24 .34 .05 .13 .35

.10 .18** .13* .06 .19**

1.47 1.50 1.39 1.33 1.19

.03 .06 .25 .18 .08

.22 .30 .01 .06 .31

.31 .03 .39 .43

.13** .35*** .25** .36*** .25***

1.36 1.18 1.48 1.34 1.94

.01 .50 .08 .19 1.64

.25 .19 .41 .53 .38

.11* .29*** (H5) .19*** .14*** (H6) .36 .28 .05** 4.20***

1.31 1.75 1.29 2.18

.24 .45 .31 .01

.01 .13 .08 .28

.31 .26 .18***a 6.04***

8.25*** ***

p < .100, p < .050, p < .010, p < .001. a R square change and its F test were based on Step 2. b Hypotheses in the parentheses in bold are supported.

corresponding regression coefficients in two distinct subsamples, Z-statistics tests were used. The results supported H3 and H4 because the squared terms of business ties and those of political ties were significantly different in the developed and underdeveloped regions (Z ¼ 4.31, P < 0.001, and Z ¼ 4.48, P < 0.001, respectively, in Table 3). Moreover, moderation effects were assessed by graphing the relationship between managerial ties and product innovation in these two subgroups (see Hitt et al., 1997). The relationships presented in Figure 1 provided support for H3 and H4: 1) regarding business ties, the curve in

Table 3 Results of regression analysis from two sub-samples (n ¼ 133 in the developed region; n ¼ 137 in the underdeveloped region). Variables

Underdeveloped region Step 1

Control variables Firm age Firm size Ownership (dummy) High-tech sector (dummy) R&D intensity Simple effects Business ties Business ties' square

Step 2

b

VIF

CI

.05 .04 .11

1.44 1.49 1.46

.25 .16 .08

.23*

1.17

.24**

1.14

Market dynamism (MD) R2 Adjusted R2 △R2 F-value þ

p < .100, *p < .050,

VIF

CI

.14 .24 .31

.10 .01 .09

1.50 1.54 1.48

.09 .21 .28

.05

.40

.08

1.24

.07

.42

.23*

.14 .10

p < .010,

***

Step 2

b

VIF

CI

.29 .18 .11

.14 .33** .25**

1.54 1.59 1.26

.05 .14 .42

.10

.25

.08

1.41

1.16

.06

.41

.30***

1.19

.31*** .31**

1.33 1.16

.13 .14

.46*** .44**

1.50 1.48

.10 .80

.28 .15 .14** 2.12**

4.02** **

Step 1

b

Political ties Political ties square

Za

Developed region

b

VIF

CI

.33 .53 .07

.11 .27** .22*

1.65 1.70 1.34

.07 .08 .39

.30 .46 .06

.26

.10

.10

1.49

.28

.08

.14

.47

.31***

1.21

.15

.47

.49 .49

.37*** .14*

1.32 1.14

.22 .30

.52 .02

.81 .07

.23* .32**

1.60 1.29

.05 .04

.50 .59

.22 .19 7.27***

0.76 4.31*** (H3) 1.44þ 4.48*** (H4)

.38 .25 .16** 4.17***

p < .001.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

10

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

Figure 1. Moderation effects of the regional development level (based on the subgroup analysis) (H3, H4).

the developed regions was significantly higher than that in the underdeveloped regions; 2) regarding political ties, the curve in the developed regions was significantly lower than that in the underdeveloped regions. The Step 3 model shown in Table 2 supported the moderating roles of market dynamism regarding tieseinnovation links. First, the regression coefficients of the interaction terms between business ties and market dynamism as well as between business ties squared and market dynamism were negative and significant (b ¼ .113, p < .05, and b ¼ .290, p < .001, respectively). Thus, H5 was supported. Second, the regression coefficients of the interaction terms between political ties and market dynamism as well as between political ties squared and market dynamism were also significant (b ¼ .194, p < .001, and b ¼ .141, p < .001, respectively), indicating support for H6. To illustrate these moderation effects, two figures conditional on three levels of market dynamism were plotted (i.e., indicating the low, moderate, and high levels; see Aiken et al., 1991). The relationships presented in Figure 2 and Figure 3 provided support for H5 and H6: in terms of business ties, the inverted Ushaped effect had higher changing rates when increasing from weak business ties to moderate business ties and when decreasing from moderate business ties to strong business ties in the highly dynamic market than in the market with moderate-level or low-level dynamics. As for political ties, the U-shaped effect had higher changing rates when decreasing from weak political ties to moderate political ties and when increasing from moderate political ties to strong political ties in the highly dynamic market than in the market with moderate-level or low-level dynamics.

Figure 2. Moderation effect of market dynamism on the relationship between business ties and product innovation (H5).

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

11

Figure 3. Moderation effect of market dynamism on the relationship between political ties and product innovation (H6).

Discussion Theoretical implications By integrating social network theory and institutional theory, this study investigates the bittersweet effects of managerial ties on product innovation, examining how those effects depend on firms' macro- and micro-institutional environments. The findings confirm most of our hypotheses, and make several important contributions to institutional theory, social network research, and the managerial ties literature. This study extends the boundaries of institutional theory to advance the scholarly understanding of social network research and the managerial ties literature in the following ways. First, our study goes further by 1) identifying the roots of the benefits and constraints involved in managerial ties, namely the actors' conformity to the embedded norms (i.e., trust, cooperation, and reciprocity) in their relational networks; 2) illustrating the rationale for the bittersweet effects of business and political ties; and 3) specifying the evolution of the bittersweet tradeoff. These endeavors elucidate the differentiated curvilinear effects of business and political ties on product innovation. Our study shows that business and political ties have an inverted U-shaped relationship and a U-shaped relationship, respectively, with product innovation. They thus add knowledge to help reconcile inconsistencies in the social network research and managerial ties literature regarding the linear (Guo et al., 2014; Li and Sheng, 2011; Peng and Luo, 2000; Sheng et al., 2011; Shu et al., 2012) and nonlinear effects (Li et al., 2008; Nie et al., 2011; Wu, 2011) of the two types of ties, suggesting that managerial ties involve both bitter and sweet aspects, with their actual effects at a particular stage depending on the tradeoff between the two. Second, the social network and managerial ties literature suggests that an interpretation of the value of managerial ties needs to consider the influences of the contexts in which firms' managing and utilizing behavior takes place (Batjargal et al., 2013; Brass et al., 2004). Seen through the institutional lens, our study contributes to the discussion of these contextual influences by 1) delineating the hierarchies of institutional environments in which firms are embedded, and 2) illustrating the infrastructural influences (in the economic view) and behavioral influences (in the sociological view) exerted by these hierarchical institutional environments on the effects of managerial ties on product innovation. Based on our findings, we are able to interpret how regional and market institutional environments alter the popularity and importance of managerial ties and change their inherent valences. More specifically, consistent with our prediction, market dynamism is found to positively moderate the relationship between managerial ties and product innovation, although the total effects of political ties in such a market are smaller than those in a stable and moderate market. A plausible explanation for this result is that although the intellectual and informational benefits of political ties have the potential to trigger product innovation, the effects may take a relatively long time to emerge, thereby depressing product innovation in the short term. Thus, “institutions establish the rules of the game for entrepreneurial activities and thereby influence both the nature and outcomes of entrepreneurs' social networks” (Batjargal et al., 2013, p. 1024). Third, our study contributes to institutional theory by joining an emerging research stream (e.g., Chan et al., 2010; Li and Qian, 2012) to address the issue that “little has been revealed about how within-country differences affect performance in different regions within a host country” (Chan et al., 2010, p. 1226). Previous studies on institutional transitions generally focus their analyses on the national level to detect how institutional transitions influence firm behaviors (Peng and Luo, 2000; Peng, 2003). In addition, the extant research on managerial ties largely views China as having a homogeneous institutional environment or draws empirical samples primarily from relatively developed areas of China, such as Beijing, Shanghai, Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

12

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

Guangzhou, and Hong Kong (Peng and Luo, 2000; Li et al., 2008; Sheng et al., 2011). As Scott (1995) observes, “it is difficult if not impossible to discern the effects of institutions on social structures and behaviors if all our cases are embedded in the same or very similar ones” (p.146). To the best of our knowledge, no previous study has compared the effects of managerial ties across geographic regions with distinct local institutions. Therefore, our study goes one step further by illustrating the unequal institutional transition at the regional level in China, showing that such inequality is mirrored by influences on the managerial tieseproduct innovation link. Fourth, our discussion of the confluence of influences from various institutional elements and the interpretation of our findings have important implications for a nascent discussion of institutional polycentrism (e.g., Batjargal et al., 2013; Greenwood et al., 2011; Holmes et al., 2013). Consistent with our prediction, business ties exert stronger effects on product innovation in developed regions, whereas political ties have stronger such effects in underdeveloped regions. Interestingly, not only do the actual effects of business and political ties differ across regions, but so too does their shape, with business and political ties exerting a U-shaped effect and an inverted U-shaped effect, respectively, on product innovation in underdeveloped regions. From the perspective of institutional polycentrism, possible explanations for these findings are as follows. With regard to political ties, in underdeveloped regions traditional customs prevail that may compel government officials to behave in ways that comply with the norms of emphasizing personal relations and reciprocity. Thus, firms can establish, maintain, and strengthen political ties more easily, and they experience less unfairness in the gift-giving and favor-taking process. More importantly, due to the immaturity of political institutions in these regions, government officials have considerable power to grant privileges to their business friends, some of whom may even provide firms with monopolistic rents (e.g., an exclusive opportunity to enter a government-directed industry) or the opportunity to earn huge profits with little outlay (e.g., participating in a program that is outsourced by the local government) (Shi et al., 2014). In this situation, firms' motivation to engage in product innovation is likely to decrease, as they already enjoy the privilege of being supported in way that enables them to survive and thrive. With regard to business ties, less developed economic institutions constrain the favors that firms can provide to their friends. Although firms can cultivate relational ties with their business friends, the favors they receive in turn may not equal the costs they invested. Only when firms have strong business ties that permit them to acquire tacit knowledge, state-of-the-art expertise, and intangible resources can they actually gain from those ties in a way that benefits product innovation. Moreover, underdeveloped local economic institutions leave firms with a vast unexplored market space to conquer, which may dilute the potential damage (i.e., unintended knowledge leakage) of excessive business ties through access to abundant innovation opportunities. Therefore, our findings reveal the confluence of the interacting and co-integrated individual effects of diverse institutional elements, thereby contributing to the institutional polycentrism literature. Managerial implications This study provides several meaningful implications for managers doing business in emerging and transitional economies. First, managers should pay close attention to both business ties and political ties when developing their new products and services in China. Although China has experienced roughly 40 years of societal transition and economic reforms and recent studies have shown that the value of managerial ties may have decreased (Peng, 2003), with some aspects (e.g., political ties) having become insignificant (Shi et al., 2014; Shu et al., 2012; Sun et al., 2012), our study shows that both business ties and political ties still have meaningful value for product innovation in China. In particular, our empirical results reveal a relatively weaker but still significant effect of political ties, and a relatively stronger effect of business ties, on product innovation in the developed regions when compared with that in the underdeveloped regions. In particular, these findings about the persisting effects of managerial ties across regions at different stages of institutional transition concur with the repeatedly confirmed value of managerial ties found by other studies across emerging or transitional economies, such as the Philippines (White et al., 2015), Russia (Marquis and Raynard, 2015), Hungary (Danis et al., 2010), Brazil (Sigmund et al., 2015), Malaysia, Pakistan, and Thailand (Zheng et al., 2015). Therefore, ours and peer studies have highlighted the importance of managerial ties in emerging and transitional societies. Specifically, managers should endeavor to cultivate managerial ties to support their business operations in the institutional context characterized by 1) underdeveloped economic institutions (e.g., factor markets, market supporting systems), and 2) political parties that have been in power for long periods and therefore have established strong government control (Zhang et al., 2015). Second, managers should be cautioned that both business ties and political ties have their sweet and bitter sides and that the coexistence of sweetness and bitterness varies across macro- and micro-institutional environments. For these reasons, managers have to actively contemplate strategies of capturing the considerable sweetness of managerial ties while, simultaneously, mitigating the potential bitterness when they are confronted with varying local and market situations. In terms of business ties, when firms are enjoying their sweetness to assist them in product innovation, they have to suffer the obligation of reciprocities and the potential dark side of network embeddedness, even at the expense of future business opportunities and competitiveness. For these reasons, our study finds an inverted U-shaped effect of business ties on product innovation in China. In addition, our study shows that such potential risks would be particularly striking when firms operate in a highly dynamic market or in a region that has relatively advanced local political and economic institutions. Therefore, we suggest that: first, managers should maintain moderately strong business ties with their peers to avoid the bitter side of business connections regarding product innovation. More importantly, when managers are doing business in Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

13

relatively developed regions or markets with high turbulence in China, they might have the opportunity to enjoy a higher level of benefits for the sake of product innovation brought by business ties while at the same time they must be prudent if they hope to mitigate the bitter side of business ties by avoiding potential over-indebtedness to other business friends (Du et al., 2015). As for political ties, as the norms of the communities in which firm managers and political actors are involved vary greatly, and since considerable power imbalance exists between business and political entities, firms are compelled to invest high initiating and cultivating costs and to endure the unfair timing and inequality of the give-and-take process. As a result, political ties might hurt product innovation when their strengths are low while enhancing product innovation as they become strong enough. Therefore, we suggest that firms consider hiring an advisor or a manager, preferably a former government official, to decrease such potential learning costs and power imbalances. More importantly, when firms operate in regions with relatively underdeveloped economic and political institutions, places where firms' connected political actors have the power to grant privileges that enable the firms to obtain monopolistic rents or earn a considerable amount of profits with little outlay, managers should view political ties as fuel for product innovation that represent a means to achieving competitive advantage rather than treating them as a competitive advantage per se. Limitations and future research directions This study may suffer from several limitations that point the way for future research. First, only unilateral data from managers' social networks were collected. Given that managerial ties represent managers' social connections with external entities, the activities of all actors in a network may influence the cultivation and utilization of those ties. Future research can make a further contribution by collecting bilateral or multilateral data from multiple actors. Second, although widely used in managerial ties research, cross-sectional data may not fully capture institutional transitions and the evolution of managerial ties. Furthermore, the self-report scales of outcome variables (e.g., product innovation) may not precisely reflect the actual results of firms' managerial ties. Thus, a longitudinal study that addresses the evolution of formal and informal institutions (Hafsi and Tian, 2005) with objective data that can measure their consequences directly would benefit scholars and practitioners alike. Third, we illustrate how firms' macro- and micro-institutional environments influence the managerial tieseproduct innovation link, yet, given the changing shape of the managerial tieseproduct innovation relationship across regions, the evolving effects of various institutions and their confluence constitute another intriguing research question. Additional research should be carried out to develop instruments with which to investigate the specific infrastructural and behavioral influences of institutional environments and firms' perceptions of and adaptations to those influences (Peng et al., 2009). Finally, additional research is needed to address the potential effects of various types of partnership ties on product innovation. For instance, nowadays SOEs still hold a favorable position in accessing a number of exclusive formal institutional resources. Therefore, the effects of networking with managers of SOEs on product innovation are likely to differ from those of networking with managers of non-SOEs. Acknowledgements Our thanks go to Professor Stefan Haefliger, City, University of London, the two anonymous reviewers for their insightful comments, China Postdoctoral Science Foundation (2014M560797), National Natural Science Foundation of China (71272134, 71472150, 71602157, 71672138), and the Major Program of National Social Science Foundation of China (No. 11&ZD170). Appendix. Measurement items, factor loadings, and internal reliabilities

Item

Cronbach's alpha (Composite Reliability)

To what extent do your agree with the following statements according to Full your company? sample Product innovation (Adopted from Lukas and Ferrell, 2000) .70 (.81) We steadily increase the number of new products we introduce We continuously refine our existing products. We develop new products and enter new markets. We continuously introduce new products to create new markets. Market dynamism (Adopted from Pelham and Wilson, 1996) .67 (.82) Our customers' needs change rapidly. The products/services in our industry become obsolete quickly.

Factor loadings AVE (in bold)

Underdeveloped Developed Full Underdeveloped Developed region region sample region region .68 (.80) .71 (.82) .51 .51 .54

.69

.66

.60 .59 .79 .85 .61

.66 .62 .74 .83 .62

.64 .57 .83 .86 .59

.80 .78

.80 .82

.80 .74 (continued on next page)

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

14

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

(continued ) Item

Cronbach's alpha (Composite Reliability)

Our competitors' strategies and actions change quickly. Political ties (Adopted from Peng and Luo, 2000) Please indicate the extent of the relationships your firm have built with .86 officials in government and other organizations (.88) Ties with officials in various levels of the government. Ties with officials in industrial bureaus. Ties with officials in regulatory and supporting organizations. Business ties (Adopted from Peng and Luo, 2000) Please indicate the extent of the relationships your firm have built with .79 top managers in other firms (.91) Ties with top managers at buyer firms. Ties with top managers at supplier firms. Ties with top managers at competitor firms.

.87 (.92)

.79 (.88)

.85 (.91)

.79 (.88)

Factor loadings AVE (in bold) .76

.74

.77

.70

.79

.76

.86 .86 .79

.91 .90 .85

.86 .91 .85

.79

.71

.70

.89 .91 .86

.86 .83 .84

.87 .89 .75

References Acquaah, M., 2007. Managerial social capital, strategic orientation, and organizational performance in an emerging economy. Strategic Manag. J. 28, 1235e1255. Aiken, L.S., West, S.G., Reno, R.R., 1991. Multiple Regression: Testing and Interpreting Interactions. Sage Publications, CA, Thousand Oaks. Ang, S.H., 2000. The power of money: a cross-cultural analysis of business-related beliefs. J. World Bus. 35 (1), 43e60. Appelbaum, R.P., Felstiner, W.L.F., Gessner, V., 2001. Rules and Networks. The Legal Culture of Global Business Transactions. Hart Publishing, Oxford. Armstrong, J.S., Overton, T.S., 1977. Estimating non-response bias in mail surveys. J. Mark. Res. 14, 396e402. Atuahene-Gima, K., Murray, J.Y., 2007. Exploratory and exploitative learning in new product development: a social capital perspective on new technology ventures in China. J. Int. Mark. 15 (2), 1e29. Bao, S., Chang, G.H., Sachs, J.D., Woo, W.T., 2002. Geographic factors and China's regional development under market reforms, 1978e1998. China Econ. Rev. 13, 89e111. Bao, Y., Chen, X., Zhou, K.Z., 2012. External learning, market dynamics, and radical innovation: evidence from China's high-tech firms. J. Bus. Res. 65 (8), 1226e1233. Batjargal, B., Hitt, M.A., Tsui, A.S., Arregle, J.L., Webb, J.W., Miller, T.L., 2013. Institutional polycentrism, entrepreneurs' social networks, and new venture growth. Acad. Manag. J. 56 (4), 1024e1049. Brass, D.J., Galaskiewicz, J., Greve, H.R., Tsai, W., 2004. Taking stock of networks and organizations: a multilevel perspective. Acad. Manag. J. 47 (6), 795e817. Carlo, J.L., Lyytinen, K., Rose, G.M., 2011. Internet computing as a disruptive information technology innovation: the role of strong order effects. Inf. Syst. J. 21 (1), 91e122. Chan, C.M., Makino, S., Isobe, T., 2010. Does subnational region matter? Foreign affiliate performance in the United States and China. Strategic Manag. J. 31, 1226e1243. Chen, J., Fleisher, B.M., 1996. Regional income inequality and economic growth in China. J. Comp. Econ. 22, 141e164. Chen, H., Li, Y., Liu, Y., 2015. Dual capabilities and organizational learning in new product market performance. Ind. Mark. Manag. 46, 204e213. Cohen, J., Cohen, P., West, S.G., Aiken, L.S., 2002. Applied Multiple Regression/correlation Analysis for the Behavioral Science. Lawrence Erlbaum Associates, Hillsdale, NJ. Cohen, W.M., Levinthal, D.A., 1990. Absorptive capacity: a new perspective on learning and innovation. Adm. Sci. Q. 35 (1), 128e152. Dahan, N., Doh, J., Guay, T., 2006. The role of multinational corporations in transnational institution building: a policy network perspective. Hum. Relat. 59 (11), 1571e1600. Danis, W.M., Chiaburu, D.S., Lyles, M.A., 2010. The impact of managerial networking intensity and market-based strategies on firm growth during institutional upheaval: a study of small and medium-sized enterprises in a transition economy. J. Int. Bus. Stud. 41, 287e307. Demurger, S., Sachs, J.D., Woo, W.T., Bao, S., Chang, G., 2002. The relative contributions of location and preferential policies in China's regional development: being in the right place and having the right incentives. China Econ. Rev. 13, 444e465. Dougherty, D., 1992. A practice-centered model of organizational renewal through product innovation. Strategic Manag. J. 13 (s1), 77e92. Douglas, S.P., Craig, C.S., 2006. On improving the conceptual foundations of international marketing research. J. Int. Mark. 14, 1e22. Du, J., Guariglia, A., Newman, A., 2015. Do social capital building strategies influence the financing behavior of Chinese private small and medium-sized enterprises? Entrep. Theory Pract 39 (3), 601e631. Du, J., Lu, Y., Tao, Z., 2008. Economic institutions and FDI location choice: evidence from U.S. multinationals in China. J. Comp. Econ. 36, 412e429. Fornell, C., Larcker, D.F., 1981. Evaluating structural equation models with unobservable variables and measurement error. J. Mark. Res. 18, 39e50. Gao, Y., Gao, S., Zhou, Y., Huang, K.F., 2015. Picturing firms' institutional capital-based radical innovation under China's institutional voids. J. Bus. Res. 68 (6), 1166e1175. Greenwood, R., Raynard, M., Kodeih, F., Micelotta, E., Lounsbury, M., 2011. Institutional complexity and organizational responses. Acad. Manag. Ann. 5 (1), 317e371. Griffith, D.A., 2010. Understanding multi-level institutional convergence effects on international market segments and global marketing strategy. J. World Bus. 45, 59e67. Gu, F.F., Hung, K., Tse, D.K., 2008. When does guanxi matter? Issues of capitalization and its dark sides. J. Mark. 72, 12e28. Guo, H., Xu, E., Jacobs, M., 2014. Managerial political ties and firm performance during institutional transitions: an analysis of mediating mechanisms. J. Bus. Res. 67 (2), 116e127. Hafsi, T., Tian, Z., 2005. Towards a theory of large scale institutional change. Long. Range Plan. 38, 555e577. Hair, J.F., Anderson, R.E., Tatham, R.L., Black, W.C., 1998. Multivariate Data Analysis. Prentice Hall Upper Saddle River, NY. Hitt, M.A., Hoskisson, R.E., Kim, H., 1997. International diversification: effects on innovation and firm performance in product-diversified firms. Acad. Manag. J. 40, 767e798. Holmes, R.M., Miller, T., Hitt, M.A., Salmador, M.P., 2013. The interrelationships among informal institutions, formal institutions, and inward foreign direct investment. J. Manag. 39 (2), 531e566. Hoskisson, R.E., Wright, M., Filatotchev, I., Peng, M.W., 2013. Emerging multinationals from mid-range economies: the influence of institutions and factor markets. J. Manag. Stud. 50 (7), 1295e1321. Hoskisson, R.E., Eden, L., Lau, C.M., Wright, M., 2000. Strategy in emerging economies. Acad. Manag. J. 43, 249e267. Hurley, R.F., Hult, G.T.M., 1998. Innovation, market orientation and organizational learning: an integration and empirical investigation. J. Mark. 62, 42e54.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

15

Ingram, P., Silverman, B., 2002. The New Institutionalism in Strategic Management. Elsevier, Amsterdam. €m, J., 2007. Institutions and business networks: a comparative analysis of the Chinese, Russian, and West European Jansson, H., Johanson, M., Ramstro markets. Ind. Mark. Manag. 36 (7), 955e967. €reskog, K.G., So €rbom, D., 1993. LISREL 8: Structural Equation Modeling with the SIMPLIS Command Language. Scientific Software International. Jo Kanbur, R., Zhang, X., 2005. Spatial inequality in education and health care in China. China Econ. Rev. 16, 189e204. Khanna, T., Rivkin, J.W., 2001. Estimating the performance effects of business groups in emerging markets. Strategic Manag. J. 22 (1), 45e74. Khanna, T., Palepu, K.G., Sinha, J., 2005. Strategies that fit emerging markets. Harv. Bus. Rev. 83 (6), 63e76. Kim, N., Atuahene-Gima, K., 2010. Using exploratory and exploitative market learning for new product development. J. Prod. Innovation Manag. 27 (4), 519e536. Kostova, T., Roth, K., 2003. Social Capital in Multinational Corporations and a Microemacro Model of its Formation, 28. Academic of Management Review, pp. 297e317. Kotabe, M., Swan, K.S., 1995. The role of strategic alliances in high-technology new product development. Strategic Manag. J. 16, 621e636. Li, H., Atuahene-Gima, K., 2001. Product innovation strategy and the performance of new technology ventures in China. Acad. Manag. J. 44 (6), 1123e1134. Li, T., Calantone, R.J., 1998. The impact of market knowledge competence on new product advantage: conceptualization and empirical examination. J. Mark. 13e29. Li, J.J., Sheng, S., 2011. When does guanxi bolster or damage firm profitability? The contingent effects of firm- and market-level characteristics. Ind. Mark. Manag. 40, 561e568. Li, J., Qian, C., 2012. Principaleprincipal conflicts under weak institutions: a study of corporate takeovers in China. Strategic Manag. J. 34 (4), 498e508. Li, Y., Li, L., Liu, Y., Wang, L., 2005. Linking management control system with product development and process decisions to cope with environment complexity. Int. J. Prod. Res. 43 (12), 2577e2591. Li, J.J., Poppo, L., Zhou, K.Z., 2008. Do managerial ties in China always produce value? Competition, uncertainty, and domestic vs. foreign firms. Strategic Manag. J. 29, 383e400. Li, J.J., Zhou, K.Z., Shao, A.T., 2009. Competitive position, managerial ties, and profitability of foreign firms in China: an interactive perspective. J. Int. Bus. Stud. 40, 339e352. Lindell, M.K., Whitney, D.J., 2001. Accounting for common method variance in cross-sectional designs. J. Appl. Psychol. 86, 114e121. Lukas, B.A., Ferrell, O.C., 2000. The effect of market orientation on product innovation. J. Acad. Mark. Sci. 28, 239e247. Luo, Y., 2003. Industrial dynamics and managerial networking in an emerging market: the case of China. Strategic Manag. J. 24, 1315e1327. Maltz, E., Kohli, A.K., 1996. Market intelligence dissemination across functional boundaries. J. Mark. Res. 33, 47e61. Marquis, C., Raynard, M., 2015. Institutional strategies in emerging markets. Acad. Manag. Ann. 9 (1), 291e335. Meyer, J.W., Rowan, B., 1977. Institutionalized organizations: formal structure as myth and ceremony. Am. J. Sociol. 83, 340e363. Nee, V., 1998. Norms and networks in economic and organizational performance. Am. Econ. Rev. 88 (2), 85e89. Nie, R., Zhong, W., Zhou, M., Jiang, W., Wang, X., 2011. A bittersweet phenomenon: the internal structure, functional mechanism, and effect of Guanxi on firm performance. Ind. Mark. Manag. 40 (4), 540e549. Noordhoff, C.S., Kyriakopoulos, K., Moorman, C., Pauwels, P., Dellaert, B.G., 2011. The bright side and dark side of embedded ties in business-to-business innovation. J. Mark. 75 (5), 34e52. North, D.C., 1990. Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge, UK. Park, S.H., Luo, Y., 2001. Guanxi and organizational dynamics: organizational networking in Chinese firms. Strategic Manag. J. 22 (5), 455e477. Pelham, A., Wilson, D.T., 1996. A longitudinal study of the impact of market structure, strategy, and market orientation on small-firm business performance. J. Acad. Mark. Sci. 24 (1), 27e44. Peng, M.W., 2003. Institutional transition and strategic choices. Acad. Manag. Rev. 28, 275e296. Peng, M.W., Luo, Y., 2000. Managerial ties and firm performance in a transition economy: the nature of a microemacro link. Acad. Manag. J. 43, 486e501. Peng, M.W., Sun, S.L., Pinkham, B., Chen, H., 2009. The institution-based view as a third leg for a strategy tripod. Acad. Manag. Perspect. 23 (3), 63e81. Peterson, R.A., 1994. A meta-analysis of Cronbach's coefficient alpha. J. Consumer Res. 21, 381e391. Podsakoff, P.M., MacKenzie, S.B., Lee, J., Podsakoff, N.P., 2003. Common method biases in behavioral research: a critical review of the literature and recommended remedies. J. Appl. Psychol. 88, 879e903. Puffer, S.M., McCarthy, D.J., Boisot, M., 2010. Entrepreneurship in Russia and China: the impact of formal institutional voids. Entrepreneursh. Theory Pract. 34 (3), 441e467. Sakamoto, H., Islam, N., 2008. Convergence across Chinese provinces: an analysis using Markov transition matrix. China Econ. Rev. 19, 66e79. Santarelli, E., Sterlacchini, A., 1990. Innovation, formal vs. informal R&D, and firm size: some evidence from Italian manufacturing firms. Small Bus. Econ. 2 (3), 223e228. Scott, W.R., 2013. Institutions and Organizations: Ideas, Interests, and Identities. Sage Publications. Scott, W.R., 1995. Institutions and Organizations, first ed. Sage Publication, Thousand Oaks, CA. Sheng, S., Zhou, K.Z., Li, J.J., 2011. The effects of business and political ties on firm performance: evidence from China. J. Mark. 75, 1e15. czy, L., Stan, C.V., 2014. The continuing importance of political ties in China. Acad. Manag. Perspect. 28 (1), 57e75. Shi, W.S., Marko Shu, C., Page, A.L., Gao, S., Jiang, X., 2012. Managerial ties and firm innovation: is knowledge creation a missing link? J. Prod. Innovation Manag. 29 (1), 125e143. Sigmund, S., Thorsten, S., Douglas, W., 2015. Networking ability and the financial performance of new ventures: moderating effects of venture size, institutional environment, and their interaction. J. Small Bus. Manag. 53 (1), 266e283. Sørensen, J.B., Stuart, T.E., 2000. Aging, obsolescence, and organizational innovation. Adm. Sci. Q. 45 (1), 81e112. Sun, P., Mellahi, K., Thun, E., 2010. The dynamic value of MNE political embeddedness: the case of the Chinese automobile industry. J. Int. Bus. Stud. 41 (7), 1161e1182. Sun, P., Mellahi, K., Wright, M., 2012. The contingent value of corporate political ties. Acad. Manag. Perspect. 26 (3), 68e82. Teece, D.J., 2007. Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance. Strategic Manag. J. 28, 1319e1350. Tellis, G.J., Prabhu, J.C., Chandy, R.K., 2009. Radical innovation across nations: the preeminence of corporate culture. J. Mark. 73 (1), 3e23. Tsui, A.S., Schoonhoven, C.B., Meyer, M.W., Lau, C., Milkovich, G.T., 2004. Organization and management in the midst of societal transformation: the People's Republic of China. Organ. Sci. 15, 133e144. Venkatraman, N., 1989. The concept of fit in strategy research: toward verbal and statistical correspondence. Acad. Manag. Rev. 14 (3), 423e444. Walsh, I.J., Bhatt, M., Bartunek, J.M., 2009. Organizational knowledge creation in the Chinese context. Manag. Organ. Rev. 5 (2), 261e278. Wei, Y.D., 2005. Planning Chinese cities: the limits of transitional institutions. Urban Geogr. 26, 200e221. White III, G.O., Boddewyn, J.J., Galang, R.M.N., 2015. Legal system contingencies as determinants of political tie intensity by wholly owned foreign subsidiaries: insights from the Philippines. J. World Bus. 50, 342e356. Wright, M., Filatotchev, I., Hoskisson, R.E., Peng, M.W., 2005. Strategy research in emerging economies: challenging the conventional wisdom. J. Manag. Stud. 42 (1), 1e33. Wu, J., 2011. Asymmetric roles of business ties and political ties in product innovation. J. Bus. Res. 64 (11), 1151e1156. Xu, K., Huang, K.F., Gao, S., 2012. The effect of institutional ties on knowledge acquisition in uncertain environments. Asia Pac. J. Manag. 29 (2), 387e408. Yi, Y., Liu, Y., He, H., Li, Y., 2012. Environment, governance, controls, and radical innovation during institutional transitions. Asia Pac. J. Manag. 29, 689e708. Zahra, S.A., George, G., 2002. Absorptive capacity: a review, reconceptualization, and extension. Acad. Manag. Rev. 27 (2), 185e203. Zhang, S., Li, X., 2008. Managerial ties, firm resources, and performance of cluster firms. Asia Pac. J. Manag. 25, 615e633.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005

16

Y. Gao et al. / Long Range Planning xxx (2016) 1e16

Zhang, J., Tan, J., Wong, P.K., 2015. When does investment in political ties improve firm performance? The contingent effect of innovation activities. Asia Pac. J. Manag. 32, 363e387. Zhang, X., Zhang, K.H., 2003. How does globalisation affect regional inequality within a developing country? Evidence from China. J. Dev. Stud. 39, 47e67. Zheng, W., Singh, K., Chung, C.-N., 2015. Ties to unbind: political ties and firm sell-offs during institutional transition. J. Manag. Doi:10.1117/ 0149206315575553, (ahead of printing). Zhou, K.Z., Li, C.B., 2012. How knowledge affects radical innovation: knowledge base, market knowledge acquisition, and internal knowledge sharing. Strategic Manag. J. 33 (9), 1090e1102. Zucker, L.G., 1987. Institutional theories of organization. Annu. Rev. Sociol. 13, 443e464.

Please cite this article in press as: Gao, Y., et al., Managerial ties and product innovation: The moderating roles of macro- and micro-institutional environments, Long Range Planning (2016), http://dx.doi.org/10.1016/j.lrp.2016.11.005