Strategic Responses to Economic Policy Uncertainty in China: The Role of Supply Chain Concentration and Political Connections

Abstract

This paper explores the impact of supply chain concentration on firms' political connections in the context of economic policy uncertainty in China. Utilizing a dataset of A-share publicly listed companies from the Shanghai and Shenzhen Stock Exchanges for the period 2009-2022, the analysis differentiates between customer and supplier concentration to assess their distinct effects on corporate political strategies. The empirical findings reveal that firms with higher customer concentration are more inclined to engage in political connections as a risk mitigation strategy, particularly during periods of heightened economic policy uncertainty. Furthermore, the moderating effect of economic policy uncertainty amplifies this relationship, suggesting that firms actively pursue political ties to manage operational risks and secure favorable regulatory environments amid regulatory volatility. This study contributes to the literature on corporate political behavior and supply chain management by underscoring the strategic significance of political connections in uncertain business contexts. The findings provide practical insights for corporate managers, highlighting the role of political connections in sustaining firm stability and profitability during external economic shocks. Additionally, the study offers valuable perspectives for policymakers by illuminating the interaction between supply chain concentration and corporate political engagement in emerging markets like China.