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Government connections and the persistence of profitability: Evidence from Chinese listed firms

Li Liu, Qigui Liu, Gary Tian and Peipei Wang

Emerging Markets Review, 2018, vol. 36, issue C, 110-129

Abstract: We find that state owned enterprises (SOEs hereafter) have lower (higher) mean-reverting rates when profitability is better (worse) than the norm; while non-SOEs with politically connected executives have lower (higher) mean-reverting rates when profitability is extremely better (worse) than the norm. In addition, SOEs controlled by the central government have lower mean-reverting rates than those controlled by local governments. Our results are robust to a series of robustness tests and a test using alternative measures of profitability. We argue that government connections help firms maintain a relatively competitive advantage and thus have an important influence on mean-reverting patterns of profitability for Chinese firms.

Keywords: Government connections; Mean reverting; Profitability; State control; Politically connected executives (search for similar items in EconPapers)
Date: 2018
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