Abstract: In the study of the effects of political connections，there are always confusing findings. It is not unusual to find positive，negative and even mix effects in the literatures. To explicate these puzzles and further investigate the effects of the political connections, we combine both perspectives of the political connections and the business model innovations together, introduce political connections into this new fast-developed field and very popular business practices in the worldwide. In this study, we construct a theoretical model and propose that the confusing effects of political connections may come from the firm-specific context of the absorptive capacity. Absorptive capacity is a set of organizational routines and processes, by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organizational capability. As one of the most important resources, political connections help firms to find and assimilate necessary information to pursuit business model innovation, and thus influence the strategic changes of business models in the all three levels including business system innovation, organizational inertia innovation, and cognitive innovation. Whether the governments exemplify "the grabbing hand ", i.e. negative effects of political connections, or “the helping hand”, i.e. the positive effects of political connections, depends on the specific context of the firm′s absorptive capacity. When absorptive capacity is further classified into the knowledge acquisition capacity (KAC) and the knowledge digestion capacity (KDC), the KAC has the similar functions of the political connections facilitating firms to obtain needed information, and exemplifies the “substitution effect”and thus weakens the effect of the political connections. However, the KDC helps firms to utilize the key information and resources obtained from the political connections, and exemplify the “complementarity effect “and thus strengthens the effects of the political connections. So in the context of a firm with high level KAC, political connections negatively affect the firm′s business model innovation and the government gives "the grabbing hand "for the firm′s innovation and development; in the context of a firm with high level KDC, political connections positively affect the firm′s business model innovation and the government gives "the helping hand "for the firm′s innovation and development. According to the prior research in related areas we adopted a survey approach to gain this type of detailed data, and selected Guangdong province and Shanghai, the most active areas of the business model innovations in China, as the research settings. Prior to administering the survey, we pilot tested the questionnaire on a group of executives and EMBA students from different industries. The revised survey was then accompanied by a cover letter explaining the objectives of the study and promising an executive report of the results if desired. All respondents were ensured that their individual responses would be reported only in an aggregated manner, so that no individual firm could be identified by anybody. Finally, all respondents were assured strict confidentiality. Surveys were sent to 628 EMBA and MBA students identified by the alumni associations of the universities. From August 2013 to August 2014, two rounds of collection have been sent and yielded 384 useable surveys in the end, representing a response rate of 61.2%. We assessed representativeness along several dimensions such as firm age, revenue, and the number of employees, the sample for this study is representative of the larger population from which it is drawn. We applied 5-point Likert Scaling to measure all the dependent and independent variables. 5 items scale of the explained variable is measured using Zeng and Song (2014)′s measure of the business model innovation (BMI). The explaining variables of the political connections was measured using Zeng and Lan (2011)′s method, and adopted Cohen and Levinthal (1990) and Xie and Zuo (2013)′s method to measure the knowledge acquisition capacity (KAC) and the knowledge digestion capacity (KDC). We also controlled the firm age, firm size, State-owned enterprises (SOEs), and high-tech enterprise to fully estimate the effects of the studying variables. We conducted the exploratory factor analysis (EFA analysis) and the Cronbach′s α test to check the reliability and validity of the scales, all the measures satisfied the requirement. Empirical results of the linear regressions revealed that all the hypotheses are supported, although the direct effect of the political connections is more complicated and needs to consider the specific context from the dynamic capacities of the firm. Both types of a firm′s absorptive capacity are positively related to the firm′s business model innovation, and the most interesting finding is that the knowledge acquisition capacity and the knowledge digestion capacity has the opposite moderating effects, KDC strengthens the positive effect of the political connections and KAC weakens the effects. Thus, we can explain the confusing findings of the current literatures about the political connections, effects of them are contexed in a firm′s dynamic capacities and other resources. Firms with high level of the knowledge digestion capacity (KDC) can fully utilize the external information and resources obtained by the firm′s political connections, and contribute to its business model innovations such as innovative business system, changes of organizational inertia, and having more business ideas activated. On the contrary, firms with high level of the knowledge acquisition capacity (KAC) will substitute the effects of the political connections, too much more information are obtained but having not enough capabilities to assimilate them, or both types of information channels of the KAC and the political connections contest with the each other and reduce the efficiency of the political connections, firms have to be stick to the old rules, the current business system, and lack new ideas about the emerging business opportunities, i.e. they have low level of the business model innovation. These findings help us to further understand the inner mechanism of the political connection affecting business model innovation, identifying the discrepancy of moderating effect between different dimensions of the absorptive capacity, and promoting the development of the theory and practice of the business model innovation. In the practices, firms should not rely solely on the political connections, only with the specific dynamic capabilities such as high level of the knowledge digestion capacity (KDC), they′ll be more innovative in the business operation and the governments will exemplify “the helping hand” as the firm wished.

Key words: business model innovation, political connection, absorptive capacity, knowledge acquisition capacity, knowledge digestion capacity