How are political connections valued in China? Evidence from market reaction to CEO succession

Lerong He, Hong Wan and Xin Zhou

International Review of Financial Analysis, 2014, vol. 36, issue C, 141-152

Abstract: Using a sample of listed Chinese firms between 2000 and 2010, the paper analyzes the stock market reaction to CEO succession. We document significantly positive cumulative abnormal returns when CEO succession is accompanied with increased political connections. We also show that the market reaction to political connections is significantly stronger for external successors and for poorly performing firms, while it is significantly weaker for firms in high-tech industries and firms located in more developed regions. Finally we find that political connections are valued significantly less in state owned enterprises than in privately controlled firms. Our findings suggest that Chinese investors do value political connections, and such valuation is conditioned by successor origin, prior firm performance, industry, region, and ownership structure.

Keywords: Political connection; CEO turnover; China (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:36:y:2014:i:c:p:141-152

DOI: 10.1016/j.irfa.2014.01.011

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