Rent-seeking incentives, corporate political connections, and the control structure of private firms: Chinese evidence

Chen, Charles J. P.; Li, Zengquan; Su, Xijia; Sun, Zhen

doi:10.1016/j.jcorpfin.2010.09.009

Cited by 452 publications

(287 citation statements)

References 42 publications

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“…However, being connected with governments through CEOs' previous working experience is not the only way recognized by existing studies. Firms can also connect with governments through other members on their boards or their largest shareholders (Chen et al, 2011). Thus, we argue that politically connected CEOs are less likely to become entrenched if the firms also have alternative connections with governments which can guarantee favourable treatment by governments.…”

Section: Hypothesesmentioning

confidence: 89%

“…The matching criterion is that the potential matching firm has the same propensity score for CEOs' political connections or, when no such match exists, the closest one with no more than a 2% deviation in propensity score; otherwise, the firm is dropped from the matching process. In particular, we obtain the propensity score for CEO political connections by regressing Political against a set of variables, including firm size, firm age, board size, leverage, book-to-market ratio, following Chen et al (2011), Boubakri et al (2012) and Guedhami et al (2014). To validate our sample construction using propensity score matching approach, we conduct univariate tests to compare firm and CEO characteristics between the treatment sample and the control sample.…”

Section: Political Connections and Turnover-performance Sensitivity Umentioning

confidence: 99%

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Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Cao¹,

Pan

Qian

et al. 2017

Journal of Corporate Finance

115

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Previous theoretical and empirical studies suggest that CEOs' political connections are valuable to firms. We examine whether such connections become entrenched if the expected political capital fails to materialize and the firm lacks other types of political power. Using a sample of listed non-SOEs in China, we show that politically connected CEOs have a lower probability of turnover and cause a weaker turnover-performance sensitivity than non-politically connected CEOs. Further analyses show that these turnover patterns are not consistent with alternative explanations, such as superior managerial ability, being a member of controlling families or being promoted from the inside. The turnover patterns are less pronounced in firms with alternative political power, such as connected boards or being vital to the local economy. Following the turnover of politically connected CEOs, firm performance does not necessarily undergo significant improvement. Our results call for new theories that comprehend the real effects of political connections. AbstractPrevious theoretical and empirical studies suggest that CEOs' political connections are valuable to firms. We examine whether such connections become entrenched if the expected political capital fails to materialize and the firm lacks other types of political power. Using a sample of listed non-SOEs in China, we show that politically connected CEOs have a lower probability of turnover and cause a weaker turnover-performance sensitivity than non-politically connected CEOs. Further analyses show that these turnover patterns are not consistent with alternative explanations, such as superior managerial ability, being a member of controlling families or being promoted from the inside. The turnover patterns are less pronounced in firms with alternative political power, such as connected boards or being vital to the local economy. Following the turnover of politically connected CEOs, firm performance does not necessarily undergo significant improvement. Our results call for new theories that comprehend the real effects of political connections.JEL classifications: G32, G34, G38

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Section: Hypothesesmentioning

confidence: 89%

Section: Political Connections and Turnover-performance Sensitivity Umentioning

confidence: 99%

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Cao¹,

Pan

Qian

et al. 2017

Journal of Corporate Finance

115

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“…As conexões políticas são mais propícias em países de economia menos desenvolvida ou em governos com mais discricionariedade na alocação de recursos (CHEN et al, 2011).…”

Section: Introductionunclassified

“…Cervi (2010) A literatura acadêmica tem destacado as implicações das estratégias políticas nas empresas, bem como a mensuração do impacto dessas conexões políticas (BREY et al, 2012(BREY et al, , 2014CHEN et al, 2011;GRAY;HARYMAWAN;NOWLAND, 2014;HILLMAN, 2005; OZER; ALAKENT, 2012;ZHU;CHUNG, 2014). Alguns estudos apontam que as conexões políticas são benéficas para as empresas, pois a política pode interferir na concorrência e, por consequência, na competitividade, ao influenciar a criação de regras e leis que possam prejudicar a entrada de novas empresas ou limitar as atuais no tocante à exploração de determinadas atividades; ou seja, a política pode interferir no mercado (BREY et al, 2012(BREY et al, , 2014HILLMAN, 2005;LAMEIRA;BERTRAND, 2008)…”

Section: Introductionunclassified

CONEXÕES POLÍTICAS NAS MAIORES COMPANHIAS LISTADAS NA BM&FBOVESPA

Pinheiro

Luca

Vasconcelos

2016

REAd. Rev. eletrôn. adm. (Porto Alegre)

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RESUMOAs conexões políticas podem ser caracterizadas como relações entre empresas e políticos, em que as empresas procuram obter vantagens e os políticos geralmente buscam financiamento de campanha. Nesse contexto, o estudo tem como objetivo geral analisar a relação entre as conexões políticas das maiores empresas listadas na BM&FBovespa e seus respectivos desempenhos. Para tanto, foram analisados os dados de 132 companhias, utilizando-se estatística descritiva, teste de diferença entre médias, Análise de Correspondência (Anacor) e Análise de Correspondência Múltipla (ACM). A conexão política de cada empresa foi representada pelo valor de sua doação para campanhas eleitorais de 2014, sendo o desempenho medido pelo Retorno sobre o Patrimônio Líquido (ROE). Os resultados indicam que a maior parte dos recursos doados para a campanha eleitoral de 2014 foi destinada à disputa pela Presidência da República e o Partido dos Trabalhadores foi a agremiação política que mais recebeu doações de campanha das empresas. A empresa JBS doou mais de 65% do total das contribuições efetuadas pelas empresas da amostra. O Ceará foi o estado que mais recebeu doações de empresas para as eleições de 2014. Amapá, Amazonas e Roraima foram os únicos estados em que os candidatos não receberam recursos para financiamento de campanhas eleitorais das empresas investigadas. A partir dos testes realizados, verificou-se não haver diferença de desempenho na comparação das empresas com conexões políticas com aquelas sem qualquer conexão política. Constatou-se uma associação entre altas conexões políticas e expressivo tamanho das empresas.Palavras-chave: Conexões políticas; Desempenho; Doações de campanha.

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“…Our choice of instrumental variable is the regional marketization index, which is highly correlated with the CCG Index, but is uncorrelated with firm performance. This index is provided by Fan et al and has been widely used as an instrumental variable in the literature [40][41][42].…”

Section: Corporate Governance and Firm Performancementioning

confidence: 99%

Does Corporate Governance Matter? Evidence from New Chinese Corporate Governance Disclosures

Zhang¹,

Dou²,

Gao³

et al. 2017

Int J Account Res

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IntroductionThis paper examines the association between corporate governance, financial distress risk, and firm financial and market performance by using the Corporate Governance in Finance (CGF) Index, which was developed for Chinese firms in 2013. The relationship between corporate governance and firm performance in developed markets such as the Unites States has been addressed in prior research, and the conclusions are mixed. For example, Gompers, Ishii, and Metrick find a positive link between an index of 24 corporate governance (G-Index) measures and abnormal returns during the 1991-1999 periods [1]. In contrast, Bebchuk, Cohen, and Wang report no association between the Harvard Law School's Entrenchment Index (E-Index) of six important corporate governance measures and abnormal market performance during the 2000-2008 period [2]. Bebchuk et al. (2013) argue that earlier associations between corporate governance and financial performance (1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999) disappeared after market participants (investors) started differentiating between firms with high and low corporate governance indices in later years (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008). However, the link between corporate governance and firm performance in emerging markets such as China is not well-addressed, primarily because of the unavailability of a Chinese corporate governance index until very recently.Our paper lies at the intersection of two streams of research. The first stream of research is on the link between firm financial performance and corporate governance. This stream of research has used many proxies for corporate governance, including the G-index, size and composition of board of directors, existence and composition of audit committee, and extent of institutional ownership [2][3][4][5][6][7][8][9][10][11][12][13]. More recent work has emphasized the conditional nature of the association between financial performance and corporate governance and finds that the link has diminished in recent years [2]. The second stream of research examines corporate governance and its role in emerging markets such as China. This line of research suggests a different bundle of governance mechanisms for emerging markets due to their weak legal protection for shareholders and ineffective external governance mechanisms [14]. The financial scandal or even collapse of many famous firms in China has highlighted the importance of governance mechanisms in corporate finance [15].The theoretical intuition for our prediction of the link between the CGF index financial distress risk and firm performance is based on signaling theory and institutional settings in China as explained in details in section II. The signaling theory helps explain management incentives for reporting CGF governance measures as well as investors' reactions to the disclosure of the CGF index [16]. Motivated by prior studies and based on the theoretical intuition, our research questions include: (1) Is corporate governance effectiveness in the...

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Rent-seeking incentives, corporate political connections, and the control structure of private firms: Chinese evidence

Cited by 452 publications

References 42 publications

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

CONEXÕES POLÍTICAS NAS MAIORES COMPANHIAS LISTADAS NA BM&FBOVESPA

Does Corporate Governance Matter? Evidence from New Chinese Corporate Governance Disclosures

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