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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:36:y:2018:i:c:p:110-129

DOI: 10.1016/j.ememar.2018.04.002

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