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Although previous studies have explored the value of government directors, less attention has been directed at the antecedents of government directors' engagement in value-adding activities, such as managerial monitoring and resource provision. Drawing on social identity theory, we offer a novel model that specifies how a government director's dual identifications with the focal firm, and with the government individually and interactively affect his or her governance behavior. An investigation of government directors in China shows that their identification with the focal firm enhances monitoring and resource provision, while their identification with the government affects monitoring and resource provision differently. depending on the dominance of state ownership. The synergistic/substitutable effects between the two types of identification are contingent on state ownership and governance roles.

AbstractResearch Question/IssueDespite the importance of political ties to firm strategy and performance, little is known about why and how firms form political ties. This study examines how firm‐specific governance structures function as important determinants of the formation of political ties and how the impact of governance structures evolves during institutional transition of emerging economies.Research Findings/InsightsOur empirical analysis is based on a longitudinal data set involving manually coded political ties of listed firms in Taiwan between 1996 and 2005. We find that business group affiliation and family ownership facilitate the formation of political ties but that such effects diminish as market infrastructures and regulatory institutions develop.Theoretical/Academic ImplicationsThis study systematically examines how corporate governance structures affect the formation of political ties. It identifies an overlooked explanation for the dynamics of political ties that resides in the internal governance structures of firms. It contributes to the corporate governance research by demonstrating how governance structures other than the board of directors can provide resources to facilitate strategic actions such as political tie establishment. It also enriches research on corporate governance bundles by showing the interdependence among multilevel governance mechanisms in the context of political tie formation.Practitioner/Policy ImplicationsThis study offers insights for business executives interested in managing interdependence with government. While business group affiliates and family firms are better able to link to politicians, such advantages diminish during institutional transition. Hence, group leaders and family owners should consider other political activities to effectively manage political risks as institutions develop.

Using data on 290 business groups, this study examines how ties with rival political parties maintained by Taiwanese firms from 1998 through 2006 affected business strategies, specifically the unrelated diversification into new industries. Taiwan's recent democratization and emerging economy provide an ideal setting for studying the economic impact of firms' ties with rival political parties. By focusing on a firm's entire portfolio of ties instead of strictly dyadic business–government ties, we offer a novel model that demonstrates how the interplay of various ties affects a firm's strategy differently under different forms of government. Our analysis shows that under a united government, ties to the ruling party facilitate entries of business groups into unrelated industries, while ties to the opposition parties inhibit such moves. Portfolios of ties to both the ruling and opposition parties impose additional obstacles to market entry. Under a divided government, however, ties to the ruling party are conducive to market entry, and portfolios of ties to both the ruling party and the opposition party with legislative authority offer a further boost. Regardless of type of government, the effect of having a portfolio of political ties tends to be mitigated by a firm's internal resources and capabilities: a firm with sufficient resources and market entry experience has a better chance of achieving its goals even when a dominant political party withholds its support. Our study highlights the tradeoffs that politically connected firms confront in emerging economies with underdeveloped political and market institutions.

Manuscript TypeConceptualResearch Questions/IssuesWe explore why and how the different combinations of governance practices at national level, such as the legal system, conduct codes, and capital markets, and at firm level, such as various types of controlling shareholders, enable or constrain outside directors to engage in their monitoring and resource provision roles. Building upon such analysis, we develop a new taxonomy of corporate governance systems according to the different configurations of a set of interdependent governance characteristics, including national governance mechanisms, identity of block shareholders, and functions of outside directors.Research InsightsThis study enriches the growing body of research on governance complementarity and substitution by highlighting the role of bundles of governance practices in influencing directors' engagement in governance behavior, and consequently advancing our understanding of variation in corporate governance systems across and within countries.Theoretical/Academic ImplicationsThis paper demonstrates that the roles of outside directors depend on the interaction between a bundle of governance mechanisms rather than any individual mechanisms. The paper also goes beyond the traditional governance models based on the national context and highlights that interdependencies of corporate governance practices play an important role in explaining the diversity and variation of corporate governance arrangements across firms in both industrialized economies and emerging markets.Practitioner/Policy ImplicationsThis paper provides insights to policymakers by suggesting that not all the governance bundles are conducive to managerial monitoring and resource provision by outside directors.