Buffer or burden? CEO political connections and R&D investment

Abstract This paper explores how different types of CEO political connections influence firms’ R&D investment. Based on resource dependence perspective and legitimacy concept, we argue that ascribed political connections (e.g., former government officials) are political insiders who have gained political legitimacy, which reduces government expectations and creates buffers to reduce R&D. However, achieved political connections (e.g., current council deputies) are political outsiders who work hard to gain political legitimacy, which increases firms’ binding with the government and the burden to increase R&D. Using panel data from privately owned firms in China, we find that the presence of ascribed political connections is negatively related to the level of R&D, and the presence of achieved political connections is positively related to the level of R&D. Results further show that the effect of political connections on R&D is weakened by the strength of state policy call.