The effect of political connections on the distribution of firm performance

Xuan Li and Yanchen Wang

China Economic Review, 2024, vol. 88, issue C

Abstract: Political connections have the potential to redistribute rents toward connected firms, and away from non-connected ones. In this paper, we show that this is indeed the case for Chinese listed firms during 2008–2015. Connected firms (as proxied by college ties between senior management and local leaders) have higher Return on Assets (ROA) and more government subsidies, while non-connected firms experience a significant decline in both ROA and subsidy when executive turnover or political rotation leads to the creation of connected firms in the city. The differential effects on non-connected firms within the same industry versus those in different industries suggest that non-connected firms outside the industry are more adversely affected due to leaders' attempts to mask favoritism with broad industrial policy.

Keywords: Political connections; Distributional consequences; Firm performance (search for similar items in EconPapers)
JEL-codes: D73 H25 P26 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1043951X24001780
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:88:y:2024:i:c:s1043951x24001780

DOI: 10.1016/j.chieco.2024.102289

Access Statistics for this article

China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

More articles in China Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().