Political connection and credit risk of real estate enterprises: evidence from stock market

Rongda Chen, Jingjing Yu, Chenglu Jin, Xinyang Chen, Liu Yang () and Shuonan Zhang
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Rongda Chen: Zhejiang University of Finance and Economics
Jingjing Yu: Zhejiang University of Finance and Economics
Chenglu Jin: Zhejiang University of Finance and Economics
Xinyang Chen: Zhejiang University of Finance and Economics
Liu Yang: University of International Business and Economics
Shuonan Zhang: Zhejiang University of Finance and Economics

Palgrave Communications, 2024, vol. 11, issue 1, 1-12

Abstract: Abstract Although extensive research has examined the credit risk of real estate enterprises, the relationship between the political connection of real estate enterprises and these enterprises’ credit risk has not been formally studied. Using the panel data of 123 real estate listed companies in the Chinese stock market from 2008 to 2021, this paper finds a significant positive correlation between the political connection of private real estate listed companies and their credit risk. This phenomenon is attributed to the excessive debt that benefits from political connections since it may raise the credit risk of any real estate firm. Interestingly, considering that 2013 is the first year of China’s Internet finance era, we find that the popularity of Internet finance and other decentralized lending financing channels may enhance the impact of political connections on real estate credit risk. Our findings provide new micro evidence for the influencing factors and mechanism of credit risk of real estate enterprises during the recent “credit crisis” in the real estate market in China.

Date: 2024
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DOI: 10.1057/s41599-023-02522-z

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