Do Resource‐Constrained Small Private Firms Support Incumbent or Nonincumbent Factions? Evidence From Chinese Township and Village Enterprises

ABSTRACT Research on corporate political strategy emphasizes firm—government engagement but largely treats governments as unitary and political alignment as stable. Drawing on stakeholder theory and the behavioral theory of the firm (BTOF), this study challenges these assumptions by examining how resource‐constrained small private firms navigate factionalized political environments. Focusing on Chinese township and village enterprises (TVEs), we theorize that performance feedback shapes firms’ political alignment choices between incumbent and nonincumbent factions. Using four empirical studies and extensive robustness checks, we find that firms experiencing below‐aspiration performance are more likely to realign by supporting nonincumbent factions, whereas above‐aspiration firms tend to maintain their political ties with incumbent factions. We further show that informal employment conditions these relationships. These findings advance stakeholder theory in incorporating intragovernmental competition, extend BTOF into the political domain, and illuminate how labor informality conditions political behavior. This study offers new insights into firm‐state relations in emerging economies where political fragmentation and discretionary power blur the boundary between market competition and political engagement.