Rent-seeking and firm value: Chinese evidence

Abstract

We examine whether engagement in rent-seeking improves firm value in China. Rent-seeking is defined as a firm's use of resources to establish a relationship with the government to obtain government-controlled resources. We incorporate political rents and associated costs into an analytical framework to examine the relationship between rent-seeking and firm value. Using a sample of non-state-owned firms listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange from 2007 to 2013, we find evidence of the presence of political rents in the form of government subsidies and evidence of associated costs in the forms of corporate philanthropy and excess management remuneration, which largely explains the insignificant relationship found between rent-seeking and firm value. Our further analysis shows that rent-seeking behavior of firms reduces production efficiency, providing additional evidence to support our thesis that engagement in rent-seeking does not enhance firm value in the Chinese context. In an economy with weak institutions, in particular with weak protection for shareholders, managers and politicians can become rent-seekers and take a considerable share of the economic benefits derived from rent-seeking.

The governance of rent‐seeking behavior in carbon asset pledge financing: An evolutionary game perspective

“…Choi and Storr (2019) examine the link between socio‐cultural and rent‐seeking and further explore the impact of different institutions on rent‐seeking culture. In addition, considering that firms can benefit from rent‐seeking, Li et al (2018) use the empirical analysis method and the data of public companies to verify whether rent‐seeking behaviors can enhance firm value. Furthermore, Menegatti (2020) analyzes the effect of rent‐seeking returns on the optimal decision‐making of rent‐seekers with risk‐averse preferences with game theory.…”

Threshold effect of government subsidy, corporate social responsibility and brand value using the data of China’s top 500 most valuable brands

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Home-country institutions and corporate social responsibility of emerging economy multinational enterprises: The belt and road initiative as an example

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