This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.
By Wen Helena Li (University of Technology Sydney, Australia), Ilya R. P. Cuypers (Singapore Management University, Singapore), Gokhan Ertug (Singapore Management University, Singapore), Hari Bapuji (University of Melbourne, Australia), and Wei Liu (Qingdao University, China).
In Short: This study examines how political ties between firms and government influence pollution, using data from 6,758 privately owned Chinese enterprises. The authors find that ties to high-level government officials (provincial/national) reduce pollution, while ties to low-level officials (prefectural/county/township) increase it, reflecting different priorities and constraining pressures at each level. Owner's social class and the salience of government attention to primary goals (environment at high levels, GDP growth at low levels) further condition these effects. For policymakers and managers in emerging markets, the findings highlight coordination across government levels and careful curating of political ties to mitigate environmental harm and support sustainable industrial practices.
Firms often rely on political ties to navigate regulations and access resources. Yet these ties can have unintended environmental consequences. New evidence from China clarifies a long-standing puzzle: the effect of political ties on pollution depends on which level of government the tie connects to. Ties with high-level officials encourage firms to reduce emissions, while ties with low-level officials can increase pollution. Managers and policymakers need to recognize these dynamics to ensure political relationships contribute positively to environmental goals. Alignment across levels—and attention to owner characteristics—is essential.
What the Researchers Did
Using data from 6,758 fully private firms across 2008–2014, the authors distinguish achieved political ties (e.g., being a business owner delegate to the five different geographic levels of the People's Congress/CPPCC). Pollution intensity is captured via official pollution levy fees scaled by sales. Statistical “tobit” models with extensive controls test how tie level relates to pollution and how two moderators—owner social class and government attention to primary goals—shape these relationships.
What They Found
High-level ties reduce firm pollution; low-level ties increase it. Mechanism: political ties “bind” firms to the priorities of the connected officials. At high levels, environmental protection is a national priority; at lower levels, growth and jobs dominate. Two conditions matter:
- Owner's social class. Higher-class owners amplify the reduction from high-level ties and blunt the increase from low-level ties (greater reputational exposure and capacity to resist local growth-at-all-costs pressure).
- Government attention. When environmental accidents heighten high-level attention, the pollution-reducing impact of high-level ties grows stronger. When local GDP targets are higher, the pollution-increasing impact of low-level ties intensifies.
Implications for Managers
Political ties are not uniformly “good” or “bad” for environmental performance. Political ties can provide firms with valuable benefits, such as preferential access, information, and protection, but they also entail substantial costs and expectations that may compromise autonomy. Managers should therefore conduct a careful cost–benefit analysis before establishing or maintaining such ties, rather than assuming they will always be advantageous. They also need to think strategically about which level of government to engage with, as the implications of ties at the national or provincial level can differ greatly from those at prefecture, county, or township levels. For their existing ties, they should audit their political-tie portfolio by level (provincial/national vs. prefecture/county/township) and be mindful that local-level ties can unintentionally undermine their firm's environmental commitment. If your owner/top team has high social standing, lean into high-level engagement to advance credible green commitments; if you rely on local ties, institute internal guardrails—KPIs, third-party audits, and escalation triggers—to prevent “quiet” emissions creep.
Implications for Policymakers
Coordinate incentives across levels so firms can consistently commit to green goals. Practical moves:
- Cascade consistent metrics (e.g., link local promotion criteria partly to sustainability-related targets).
- Synchronize inspections and reporting calendars to reduce arbitrage across levels.
- Signal surges in high-level attention (post-accident periods) with targeted, time-bound guidance for politically connected firms. Engage high-social-class owners who can shape sector norms and catalyze broader green transformation.
- Engage high-social-class owners who can shape sector norms and catalyze broader green transformation.
Beyond China: The level-logic travels. In federations like Canada, federal ties may pull toward compliance while provincial priorities vary; in Belgium, regional environmental authority can dominate even when national economic aims differ. The authors also discuss recent Chinese policy trends, suggesting stronger high-level oversight could narrow the gap between levels over time.
Bottom line: Not all political ties are equal. Map them by level, monitor attention signals, and design cross-level governance so political capital accelerates—rather than undermines—pollution reduction.
Original Work
Li, W. H., Cuypers, I. R., Ertug, G., Bapuji, H., & Liu, W. (2025). Not All Political Ties Are the Same: Firms' Ties to the Government and Pollution. Journal of Management, 01492063251361787.
Contact
If you are interested in learning more about this work, contact Professor Helena Li at Helena.Li@uts.edu.au
