Political connections, tax benefits and firm performance: Evidence from China

Wu, Wen Jian; Wu, Chongfeng; Zhou, Chunyang; Wu, Jun

doi:10.1016/j.jaccpubpol.2011.10.005

Cited by 500 publications

(403 citation statements)

References 38 publications

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“…The political appointments better enable the corporate elites to communicate and negotiate with the government on important policies affecting their business such as entry permit, tax benefits, preferential financing, etc. (Dickson 2003, Wu et al 2012. In exchange, the government might expect these incorporated business elites and their firms to share responsibilities with the government, such as making donations in the name of the public good (Wang and Qian 2011).…”

Section: Institutional Characteristics and The Nature Of Donation In mentioning

confidence: 99%

“…Moreover, the government is deeply involved in many industry-specific regulations (e.g., Gallagher 2006) and can intervene via discriminating policies such as preferential tax, financing, etc. (Wu et al 2012). Industry hence constitutes a firm's task environment (Thompson 1967), which is critical for firm survival and success.…”

Section: Resource Dependence and Effects Of Political Connectionsmentioning

confidence: 99%

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Do Political Connections Buffer Firms from or Bind Firms to the Government? A Study of Corporate Charitable Donations of Chinese Firms

Zhang

Marquis

Qiao

2016

Organization Science

319

348

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D o political connections buffer firms from or bind firms to the government? To examine this theoretical puzzle, we distinguish two types of managerial political connections, ascribed and achieved, and theorize that these different types of ties either buffer firms from or bind firms to government demands. Furthermore, we propose that these effects are contingent on both industrial and regional institutional conditions. We test our framework with a unique panel data set of privately controlled listed firms' charitable donations in China from 2001 to 2012. We find that firms whose executives have ascribed bureaucratic connections are more likely to use their connections as a buffer from governmental donation pressure, particularly in competitive industries and less market-oriented regions, whereas in state-monopolized industries this buffering effect is reduced. In contrast, achieved political connections are more likely to serve a binding function that facilitates donation, particularly in state-monopolized industries and more market-oriented regions, but in less marketoriented regions, they buffer firms from the pressure to donate. Our research contributes to the literatures on the effects of political connections, the institutional contingencies of political connections, and the relationship between corporate social responsibility (CSR) and corporate political activities (CPA).Keywords: political connections; corporate charitable donation; resource dependence; institutional environment History: Published online in Articles in Advance September 29, 2016. IntroductionAs institutional linkages that span firms and governmental authorities, firms' political connections are a key component of corporate political strategy in both developed and emerging economies (Hillman 2005, Hillman et al. 1999, Peng and Luo 2000. However, the effects of political connections on firm behavior and outcomes are not clear (Sun et al. 2012). Many studies focus on the benefits from such linkages and indicate that political connections have a "buffering" effect; that is, they provide a buffer for the organization from competitive and regulatory forces via access to information, influence, and legitimacy (Hillman 2005, Hillman et al. 1999, Lester et al. 2008, Peng and Luo 2000. Research has shown that firms can employ their political capital to shield themselves from unwanted political interference, unfavorable regulations, and/or various forms of government rent expropriation (Mellahi et al. 2016). Even in the United States, political connections have been shown to help firms when they deal with regulators (Correia 2014, Yu andYu 2011). In emerging markets, such a buffering effect is seen as an effective mechanism to protect firms from government rent-seeking behavior (Chen et al. 2011, Dieleman andBoddewyn 2012).In contrast, other studies consider these connections from the perspective of the government and emphasize the necessary costs of such linkages for the firm. From this perspective, political connections have a "binding" effect, ...

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Section: Institutional Characteristics and The Nature Of Donation In mentioning

confidence: 99%

Section: Resource Dependence and Effects Of Political Connectionsmentioning

confidence: 99%

Do Political Connections Buffer Firms from or Bind Firms to the Government? A Study of Corporate Charitable Donations of Chinese Firms

Zhang

Marquis

Qiao

2016

Organization Science

319

348

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“…In addition, they argue that a tax structure based on direct taxes is more efficient in terms of supporting economic growth. Wu et al (2012) argue that in China private firms with politically connected managers enjoy tax benefits. Chude et al (2015) conclude that the positive and significant relation between profitability and taxation explanatory variables indicates that if policymakers expand tax revenue through more effective tax administration it will positively impact a company's profitability.…”

Section: Factor Determining Levels and Variations In Turnovermentioning

confidence: 99%

Relationship Between Inflation and Real Economic Growth in Rwanda

Nkikabahizi

Ndagijimana

Musabanganji

2017

Frontiers in African Business Research

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“…The seminal paper of Fisman Generally, most of them conclude that political connections lead to higher financial performance or higher market value of firms. For instance, Wu et al (2012) find that Chinese private firms having politically connected managers have better performance than non-connected firms. Ding et al (2014) partially find that having politicians on the board help improve firm performance particularly in the stateowned enterprises.…”

Section: Financial and Market Performancementioning

confidence: 99%

“…Likewise, given the nature, some accounting papers in this review, stress on the link between political connections and some aspects related to tax benefits, financial reporting and earnings management. For example, Wu et al (2012) provide evidence that politically connected private firms in China enjoy tax benefits. Similar issue is also studied by Platikanova (2017).…”

Section: Financial Reporting Earnings Management Audit and Tax Benementioning

confidence: 99%

A Recent Literature Review on Corporate Political Connections

Trinugroho

2017

JDM

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It has always been an interesting issue deliberating the connectedness between corporation and political power. There have been a substantial number of papers in the academic literature empirically studying what so call "corporate political connections" over the last 17 years. Using 81 papers published in 2010-2017 in finance, economics, accounting, management and other journals, in this present paper, I provide a recent literature review on firm political connections particularly with respect to the empirical studies discussing the impact of being politically connected firms. A number of issues related to the effect of political connections on corporate strategy, behaviors and outcomes have been addressed. Few other papers provide different perspective by looking at the antecedents of corporate political connections and the contingency role of such connections. Little is found on the development of new measures of corporate political connections. Finally, it could be suggested that the interaction between political connections and the technological-based business innovation would be an interesting issue to study.

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Political connections, tax benefits and firm performance: Evidence from China

Cited by 500 publications

References 38 publications

Do Political Connections Buffer Firms from or Bind Firms to the Government? A Study of Corporate Charitable Donations of Chinese Firms

Do Political Connections Buffer Firms from or Bind Firms to the Government? A Study of Corporate Charitable Donations of Chinese Firms

Relationship Between Inflation and Real Economic Growth in Rwanda

A Recent Literature Review on Corporate Political Connections

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