Abstract:    In 2006, the Chinese government launched a policy reform to encourage indigenous innovation, which was applicable to all Chinese enterprises. The policy change has produced an increasing number of domestic patent applications. However, most of those patents are low-quality utility patents, with a small proportion of high-quality invention patents. Considering the critical role of the state in economic development, government-business relations are prominent for Chinese enterprises. However, prior research on the impact of political connections on firms′ innovation decisions remains inconsistent. Some studies show a beneficial impact of political connections on corporate innovation while others suggest a detriment effect. These contradictory perspectives and empirical findings present an unresolved theoretical puzzle: Do political connections promote or dampen firm innovation?
Drawing on the political embeddedness perspective, this study examines how direct and indirect political connections affect private enterprises′ innovation strategies. Using a sample of Chinese private enterprises from 2008 to 2017, the empirical results show that Chinese private enterprises with direct political connections are more inclined to promote low-quality strategic innovation rather than high-quality substantive innovation, indicating that excessively intimate relationships with the government becomes the "curse" of innovation. Though such intimate relationships can generate a larger amount of low-quality strategic innovations, it will actually inhibit the development of substantive innovation. Private enterprises with indirect political connections engage in both types of innovation, but they are more inclined to employ substantive innovation rather than strategic innovation. This indicates that moderately intimate relationships with the government is the "blessing" of innovation, which is conducive to generating more innovation output, especially a larger number of high-quality substantive innovations. When private enterprises operate in regions with higher institutional development, the positive effect of direct political connections on strategic innovation will be weakened, the negative effect of direct political connections on substantive innovation will be strengthened, and the positive effects of indirect political connections on both strategic and substantive innovation will be strengthened. Moreover, when private enterprises have a larger administrative hierarchical distance with the central government, the negative effect of direct political connections on substantive innovation and the positive effect of indirect political connections on strategic innovation will be strengthened, but the positive effect on substantive innovation will be weakened. 
    This paper makes several contributions to the literature. First, we respond to the existing debate regarding the balance between innovation quantity and quality, enriching the research on corporate innovation strategy. Second, through solving the puzzle regarding the impact of political connections on firm innovation, this study advances the research on corporate political connections. Third, this paper extends the application of political embeddedness theory by revealing the paradox effects of political embeddedness on firm innovation. Finally, this paper contributes to the institutional complexity research by establishing a comprehensive framework to understand the effects of political connections within China. 
    This study also has some practical implications. First, in order to ensure the balance pertaining to the quantity and the quality of innovation, policy makers should build "close" but "clear" government-business relations to avoid the "curse effect" of collusion between businesses and government officials on innovation. At the same time, it is necessary to speed up market-oriented reforms, create a fair market competition environment, and build an endogenous institutional environment that helps private enterprises to develop core technological innovation capabilities and generate more high-quality innovations. Second, firms should be aware of the double-edged effect of political connections on innovation. On the one hand, firm managers should avoid building direct political ties with government officials that are "close" but not "clear", otherwise it will inhibit private enterprises′ high-quality innovation outputs. On the other hand, private enterprises should make full use of the value of indirect political connections. The benefits derived from industry associations can help break through the bottlenecks in fund raising, resource acquisition, fair competition, and intellectual property protection, promoting the production of more high-quality substantive innovations. 
    This study is not without limitations. First, this paper only differentiates between direct and indirect political connections and examines their distinct impacts on corporate innovation. Future research could examine other taxonomies of political connections and their outcomes. Second, this paper only uses utility and invention patents to measure strategic innovation and substantive innovation, respectively. Future research could complement our study by using measures such as patent novelty or patent semantic citation. Finally, this paper only adopts the registered address of private enterprises as the basis for calculating administrative hierarchical distance. Future research could consider measuring the variable based on the administrative hierarchy of the government that governs private enterprises.

Key words:  political embeddedness perspective, political connection, innovation quantity, innovation quality, private enterprise