Political connection and the walking dead: Evidence from China's privately owned firms

Qing He (), Xiaoyang Li and Wenyu Zhu

International Review of Economics & Finance, 2020, vol. 69, issue C, 1056-1070

Abstract: Using a sample of privately owned listed firms in China, we document that firms’ political connections have a positive effect on their likelihood of becoming insolvent and inefficient (which we call zombies or zombie firms). The results are more pronounced for firms that are located in regions with extensive government intervention or weak institutional environment. In addition, for firms without political connections, the presence of zombie firms has larger negative spillover effects on the investment and productivity of healthy firms compared with zombie firms in the same industry. Curiously, such differential negative spillover effects are not observed for firms with political connections.

Keywords: Zombie firm; Political connection; Resource misallocation (search for similar items in EconPapers)
JEL-codes: G21 G34 L33 P34 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:1056-1070

DOI: 10.1016/j.iref.2018.12.007

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