Political capital and physical capital: Substitute or complement? Evidence from China's anti-corruption campaign

Lei Cheng

Emerging Markets Review, 2022, vol. 51, issue PB

Abstract: How political capital affects physical capital investment is controversial in the literature. This paper explains the contradictory relationship between political and physical capitals. Using an exogenous shock (leading to a sudden reduction in political capital) and the DID estimation, we find that physical capital complements political capital for state-owned enterprises (SOEs) while this relationship is substitutional for private firms. This result can be explained by the changes in firms' economic performance after the reduction in political capital. Our findings provide an important policy implication. That is, governments should lessen policy burdens on SOEs and reduce institutional discrimination against private firms.

Keywords: Political capital; Physical capital; Mandatory resignation; Substitute; Complement (search for similar items in EconPapers)
JEL-codes: G31 L25 O16 P26 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:51:y:2022:i:pb:s1566014122000036

DOI: 10.1016/j.ememar.2022.100886

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