Political connections and product market competition: Effects and channels

Yan Lin, Yijia Liu and Kam C. Chan

International Review of Economics & Finance, 2021, vol. 76, issue C, 801-816

Abstract: We examine the effect of political connections (PCs) on firms' product market competition and the corresponding channels of this effect in China. Our findings suggest that PCs exert a negative impact on a firm's product market competition. Specifically, compared to non-PC firms, PC firms enjoy more competitive advantages. Moreover, we distinguish PCs stemming from managers and those stemming from directors. When compared to manager-only PC firms, director-only PC firms have stronger adverse effects on product market competition, indicating the effect of PCs is heterogeneous. Additional analysis shows that the effect of director-only PC firms on product market competition is more salient when directors have same industry and related-industry experience. Finally, we find corporate operating risks, trade credit, and financial constraints are important channels through which PCs influence product market competition.

Keywords: Political connections; Product market competition; Occupational positions; Types of directorship; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 L10 L20 M10 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:76:y:2021:i:c:p:801-816

DOI: 10.1016/j.iref.2021.07.009

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