The effect of political and business ties on firm performance: The mediating role of product innovation

PurposeThe purpose of this study is to investigate the mediator role of product innovation in the relationship between political and business ties (independent variables) and firm performance (dependent variable).Design/methodology/approachIn this study, research hypotheses were tested using the structural equation modeling method.FindingsThe findings from 267 manufacturing companies in Iran show that business ties have an effect on firm performance through product innovation, while the role of innovation is not proved as a mediating variable in the relationships between political ties and firm performance. In addition, business ties have an effect on product innovation and firm performance, whereas political ties have no such effect.Practical implicationsThese results provide useful points for developing economies, theoretically and practically.Originality/valueDespite the increasing attention to the role of managerial ties (political and business ties) in improving product innovation and firm performance, there is no study conducted on the mediating role of product innovation in the relationship between managerial ties and firm performance.