Do politically connected directors play an information role under policy uncertainty?

Bunyamin Onal

Journal of Multinational Financial Management, 2023, vol. 68, issue C

Abstract: We examine whether politically connected directors (PCDs) play an information role in corporate investments in periods of uncertainty about government policy (PU). Our identification strategy relies on a 2013 ruling in China which mandated eviction of PCDs from corporate boards. Using difference-in-differences estimation around the ruling, we find that PU is less disruptive to capital expenditures and acquisitions in the presence of PCDs and this benefit dissipates in their absence. Managers also pay closer attention to stock price signals after their firms get politically disconnected. Thus, we conclude that political connections provide informational benefits that facilitate corporate investments under PU.

Keywords: Corporate investments; Policy uncertainty; Political connections; Board of directors; Information (search for similar items in EconPapers)
JEL-codes: D8 G3 J3 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:68:y:2023:i:c:s1042444x23000063

DOI: 10.1016/j.mulfin.2023.100787

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