Political connections, network centrality and firm innovation

This paper examines how the strength of political connections affects innovation. Considering complex relationships between firms and governments as well as different powers of bureaucracy ranks, we model political connections of all Chinese listed firms as weighted social networks and measure their strength by network centralities. The empirical results show that firms with stronger political connections innovate more. This paper further identifies two possible mechanisms of this finding: political connections help firms get more government subsidies and intellectual capital, both of which are verified to promote innovation with statistical significance.