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CEO political connection and stock sentiment beta: Evidence from China

Shangkun Yi, Jian Wang, Xiaoting Wang and Hongrui Feng

Pacific-Basin Finance Journal, 2022, vol. 74, issue C

Abstract: This study examines the impact of CEO political connection on stock sentiment beta. We theorize that CEO political connection contributes to elevated stock sentiment sensitivity because investors overvalue executives' political connection in a transitioning economy. Panel regression results with data of Chinese listed companies from 2009 to 2019 support our hypotheses. The impact of CEO political connection on stock sentiment risk is more pronounced during high sentiment periods and among non-state-owned enterprises. Investors often ignore politically connected CEOs' deficiency in internal management reflected by low quality internal information, ineffective supervision and control, and high management risk. These deficiencies contribute to higher stock sentiment beta. Noise trading uplifts stock sentiment beta, especially for companies with politically connected CEO. Encouragingly, the national anti-corruption campaign has curbed investors' adulation of political connections. This study warns investors and corporate boards against CEO political connection and calls for a more prudent treatment.

Keywords: Stock sentiment beta; CEO political connection; Corporate internal control; Noise trading; Anti-corruption campaign (search for similar items in EconPapers)
JEL-codes: G30 G41 M21 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.pacfin.2022.101813

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