Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms

Leng Ling, Xiaorong Zhou, Quanxi Liang, Pingping Song and Haijian Zeng

Finance Research Letters, 2016, vol. 18, issue C, 328-333

Abstract: Using a sample of 103 listed real estate firms from 1998 to 2012, this paper examines the influence of firms’ political connections on external financing, corporate investment, and financial performance. The results indicate that political connections are negatively related to return on assets. Moreover, firms with stronger connections are financed with more long-term bank loans and are more likely to overinvest, which partially explains the puzzle of adverse effect of political connections on performance. Taken together, our results suggest that cultivating political connections could be a risky investment and may not always pay off.

Keywords: Political connection; Real estate; Overinvestment; Firm performance (search for similar items in EconPapers)
JEL-codes: G32 G34 G38 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:18:y:2016:i:c:p:328-333

DOI: 10.1016/j.frl.2016.05.009

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