Relational governance, strategic planning and firm performance

Abstract

Purpose: While there is growing attention to the efficacy of business and political ties in emerging economies, there are not many studies explicitly examining the relations of business and political ties to small and medium enterprises (SME) strategy formation in emerging economies outside of the East-Asian setting. This study attempts to refine the facilitating role of formal strategic planning (FSP) in the relation of business and political ties to financial firm performance. Design/methodology/approach: Structural equation modeling and conditional mediation analyses were used. Findings: The authors show that while business ties are positively related to FSP, political ties are negatively associated with it. In addition, this study provides empirical evidence that FSP positively mediates the relation of business ties to financial performance. Conversely, there exists a negative indirect relationship between political ties and financial performance. This study shows that the demand uncertainty negatively moderates the relation of FSP to financial performance. Originality/value: The findings offer noteworthy inferences for firm managers and policy makers, who should evaluate the benefits and costs carried by business and political ties.