Resource dependence or monitoring: a governance perspective on political connections

Bingjie Wang, Siming Yan and Lihong Wang

Asia-Pacific Journal of Accounting & Economics, 2021, vol. 28, issue 6, 631-656

Abstract: This paper empirically investigates the resource versus monitoring roles of independent directors with political connections using a sample of privately controlled firms listed on the Chinese stock markets during the 2003–2013 period. We examine how political connections affect firms’ financing decisions and discount rate. Our results show that having politically connected independent directors facilitates firms’ access to external debt financing, indicating a broader resource base. However, having politically connected independent directors does not help connected firms reduce the cost of capital, probably because these directors are unable to perform their monitoring role effectively. The above results are robust to various model specifications and are more pronounced when we consider the appointment of politicians as independent directors instead of non-independent directors.

Date: 2021
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DOI: 10.1080/16081625.2019.1584759

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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