Political Connections and Government Subsidies: Evidence from Financially Distressed Firms in China

Tao, Qizhi; Sun, Yicheng; Yingjun, Zhu; Yang, Xiaolin

doi:10.1080/1540496x.2017.1332592

Cited by 66 publications

(50 citation statements)

References 30 publications

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“…Political connection score is measured by summing the score of a bank's presence of political connection based on the positions and status. In scoring the bank's presence of a political connection, we modify Tao et al (2017) to better fit with the Indonesian context. Based on the organizational structure of ministries and government institutions in Indonesia, career or position can be divided into seven levels.…”

Section: Methodsmentioning

confidence: 99%

The effect of related party transactions on firm performance: the moderating role of political connection in indonesian banking

Supatmi

Sutrisno

Saraswati

et al. 2019

BTP

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This study aims to examine the effect of related party transactions (RPTs) on banks’ performance and investigates political connections as moderator in their causal relationship. Our sample is 40 Indonesian banks listed on the Indonesian Stock Exchange for the years 2013–2016 with 160 observations as panel data. Based on panel data regression test, our results demonstrate that account receivables-related RPTs have a positive effect on banks’ profitability and its market performance (Tobin’s Q), but there are consequences of high operating costs and the risk of non-performing loans. Banks receive more funds from their related parties (account payables-related RPTs), banks exhibit higher capital capability and lower market performance. Further, the political connection index in banks significantly affect banks’ capability, liquidity, efficiency, and market value through RPTs. This result indicates that political connection strengthens the effects of RPTs on banks’ performance. Although this study has limited information in determining political connections and has not considered macroeconomic conditions, these findings imply that political connection plays an important role in banks’ performance in Indonesia.

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Section: Methodsmentioning

confidence: 99%

The effect of related party transactions on firm performance: the moderating role of political connection in indonesian banking

Supatmi

Sutrisno

Saraswati

et al. 2019

BTP

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show abstract

“…Yang [49] reported that firms benefit from government subsidies as their production costs decrease and production scales increase, thus creating larger net profits. Using financially distressed firms in China as a sample, Tao et al [50] found that politically connected firms received more government subsidies, which in turn enhanced firm value. Jacob et al [51] found that fund performance decreased substantially following the phase-out of tax subsidies for Canadian labor-sponsored venture capital corporations, indicating that government subsidies in Canada have a positive effect on firm performance.…”

Section: Relationship Between Government Subsidies and Firm Performancementioning

confidence: 99%

The Impact of Government Subsidies on Private R&D and Firm Performance: Does Ownership Matter in China’s Manufacturing Industry?

Jin

Shang

2018

Sustainability

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Government subsidies as a policy instrument are used to alleviate market failure in research and development (R&D) activities. We aim to understand the influence of government subsidies on enterprises' R&D investment and performance. We are also interested in examining how the attributes of enterprise ownership act as a moderating variable for the relationship between government subsidies, R&D investment, and firm performance. We use firm-level data on China's manufacturing listed companies from 2011 to 2015. The results show that receiving government subsidies improves private R&D investment and firm performance, and state-owned enterprises (SOEs) can obtain more subsidies than private-owned enterprises (POEs). However, the impact of government subsidies on private R&D investment is stronger in POEs than in SOEs of China. In additional analyses, we also examine this relationship by industry, region, subsidy intensity, and R&D intensity. This study has important policy implications for regulators to improve the effectiveness of government subsidies.

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“…Tao et al. () find politically connected ST firms receive more government subsidies. Motivated by the political view of government intervention, it is therefore hypothesised that:…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…In China, studies have found that political connections entitle politically connected firms to favourable terms such as in their IPO (Francis et al 2009), lending terms and firm performance , compensation and performance premium (Conyon et al 2015), mergers and acquisitions (Liu et al 2016), positive abnormal returns (He et al 2014) and higher cash dividends (Su et al 2014). Tao et al (2017) find politically connected ST firms receive more government subsidies. Motivated by the political view of government intervention, it is therefore hypothesised that:…”

Section: The Political Versus the Social View Of Government Interventionmentioning

confidence: 99%

Earnings‐based Delisting Regulations and Government Subsidies

2019

Australian Accounting Review

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This paper examines who receives government subsidies when a firm faces delisting risk and how subsidies affect such a firm's performance in China. It focuses on the accounting‐based delisting rule issued in 1998 that relies heavily on the profitability of firms. Using the probit model, this study finds that subsidies are less likely to be granted to a firm that has a higher risk of being delisted than a healthy firm, but are more likely to be granted to such a firm if it is state‐owned. It is also found that having a political connection increases a firm's chance of receiving subsidies, but such an effect disappears when a firm faces a delisting risk. In assessing the impact of a subsidy on firm performance, this study shows that a subsidy increases a firm's valuation and profitability for firms at delisting risk.

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Political Connections and Government Subsidies: Evidence from Financially Distressed Firms in China

Cited by 66 publications

References 30 publications

The effect of related party transactions on firm performance: the moderating role of political connection in indonesian banking

The effect of related party transactions on firm performance: the moderating role of political connection in indonesian banking

The Impact of Government Subsidies on Private R&D and Firm Performance: Does Ownership Matter in China’s Manufacturing Industry?

Earnings‐based Delisting Regulations and Government Subsidies

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