Political connections and managerial premiums in the labor market: Evidence from China

Wenhao Tan, Qiong Wang, Xiuyuan Guo and Jiangting Chen

Economic Modelling, 2022, vol. 114, issue C

Abstract: This study investigates whether and how chief financial officers' (CFOs') political backgrounds affect managerial premiums in the labor market. Previous studies have confirmed that political connections can have widespread firm-level benefits, but there has been limited focus on the influence of political connections on the labor market. Using a panel dataset from 2008 to 2020 in China, our empirical results indicate that CFOs’ political connections are positively correlated with higher compensation and the probability of voluntary turnover but negatively correlated with firm performance, particularly for connections at the central government level or those involving multiple government positions. Adopting a difference-in-differences model and an event study methodology, we determine that politically connected CFOs can bring bank credit and tax advantages to firms, thereby increasing firm value. Furthermore, such connection-led premiums are higher in less developed regions, and politically connected CFOs are more willing to relocate to such regions.

Keywords: CFO; Managerial labor market; Compensation incentive; Executive turnover (search for similar items in EconPapers)
JEL-codes: G28 G38 I31 J32 J40 M51 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:114:y:2022:i:c:s0264999322001857

DOI: 10.1016/j.econmod.2022.105939

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