Anticorruption, political connections, and corporate cash policy: Evidence from politician downfalls in China

Haohan Ren and Xiaofeng Zhao

Emerging Markets Review, 2020, vol. 45, issue C

Abstract: We examine how firms change their cash policies in response to the downfall of corrupt politicians in China. We find that firms connected to their local government increase cash holdings when high-profile politician downfalls occur in the government. Consistent with the precautionary saving argument, the effect is stronger for firms that have greater investment opportunities or face greater financial constraints. Compared to unaffected firms, affected firms save more cash out of cash flows and have a higher marginal value of cash holdings. Overall, we show that the collapse of firms' political connections has significant impacts on those firms' financial policies.

Keywords: Anticorruption; Politician downfalls; Political connections; Cash policy (search for similar items in EconPapers)
JEL-codes: D73 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:45:y:2020:i:c:s1566014120300054

DOI: 10.1016/j.ememar.2020.100745

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