What do private firms do after losing political capital? Evidence from China

Zhi-min, LI; Cheng, Lei

doi:10.1016/j.jcorpfin.2019.101551

Cited by 31 publications

(10 citation statements)

References 28 publications

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“…First, we find evidence to support the resourcing role of OIDs (Shi et al 2018), addressing the examinations recorded in prior literature, which may be affected by the endogeneity problem (Agrawal and Knoeber 2001;Kim 2007). Although some researchers have used the sudden death of OIDs (Cheng 2018;Li and Cheng 2020) or their voluntary resignations (Dewally and Peck 2010) as a quasi-experimental setting, the results may be affected by the successors as well as the departing directors (Shi et al 2018). Second, the prior literature mainly focuses on the resources or social capital brought by OIDs from a general perspective (Cheng and Sun 2019;Hu et al 2020;Shi et al 2018;Tang et al 2016;Wang 2015;Wang et al 2019;Zhu et al 2016) without fully considering the heterogeneity of OIDs' backgrounds.…”

Section: Resultssupporting

confidence: 59%

“…Kim (2007) studies the relationship between outside directors and firm performance and uses an instrumental variable approach to alleviate the endogenous bias; nonetheless, the possibility of reverse causation and quality signaling could not be completely ruled out. Therefore, solving the endogenous bias has become the main empirical challenge to studying the effects of official independent directors (OIDs) on firm performance (Cheng and Sun 2019;Li and Cheng 2020;Zhang et al 2017). The implementation of the Chinese government's mandate on October 19, 2013, i.e., Rule No.…”

Section: Introductionmentioning

confidence: 99%

“…Unlike the supervisory function of independent directors (Chizema et al 2015;Wang 2015), RDT and SCT emphasize that OIDs are endowed with political resources, which can bring crucial advantages to the firm (Fan et al 2007;Li and Cheng 2020;Liu et al 2013). Among the most relevant literature regarding the impact of Rule No.…”

Section: Introductionmentioning

confidence: 99%

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Resignation of officials as independent directors and firm performance

Ren

You-zhi

et al. 2020

Front. Bus. Res. China

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In 2013, the Chinese government implemented Rule No. 18, which suspended the directorships of incumbent government officials and precluded those who retired within the past three years from serving as independent directors for listed firms. The surprise implementation of Rule No. 18 triggered a wave of resignations among official independent directors (OIDs). The event provided a unique opportunity to examine the impacts of the political connections of board members on firm performance. We applied a difference-in-difference technique to empirically investigate the effect of OID resignations on firm performance from the perspectives of resource dependence theory and social capital theory. The results indicate that the resignation of OIDs had a significantly negative effect on firm performance, as measured by Tobin’s Q and firm leverage. This also confirmed the importance of independent directors’ political connection on firm performance, as discovered in prior research. However, this influence varied across OIDs’ heterogeneity, external environment and firm ownership. The results indicate that political connections may not be necessary channels for firms to achieve success.

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Section: Resultssupporting

confidence: 59%

Section: Introductionmentioning

confidence: 99%

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Resignation of officials as independent directors and firm performance

Ren

You-zhi

et al. 2020

Front. Bus. Res. China

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“…The first of these is the potential targets of government subsidies. Political connections are considered and denoted as PltcCnct it , according to recent research suggesting that political connections lead to economic benefits, including government subsidies [ 56 , 57 ]. Innovation capacity is considered according to the picking-the-winner subsidizing strategy [ 1 ], denoted as ApplyPerNtCpt it and ApplyPerLbSlr it , where the former indicates the average innovation productivity of capital and the latter indicates that of employees.…”

Section: Methodsmentioning

confidence: 99%

Financial constraints, government subsidies, and corporate innovation

Wang

Cao

et al. 2021

PLoS ONE

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To investigate the relationships between financial constraints, government subsidies, and corporate innovation, a semi-logarithmic fixed-effect panel model and mediation effect test were applied, based on the data of Chinese listed companies from 2007 to 2017. We find that (1) financial constraints suppress corporate innovation. (2) Government subsidies are targeted at bailing out firms facing financial constraints. (3) Government subsidies promote corporate innovation (4) Government subsidies partially offset the suppression of financial constraints on innovation. We contribute to the fields of public finance, corporate finance, and corporate innovation by: (1) justifying the government subsidies target strategy as a bailout of corporate financial constraints, (2) verifying the corporate-innovation promotion of government subsidies, thus justifying the efficiency of government subsidies, and (3) showing that different types of innovation benefit differently from subsidies, thus justifying subsidies as a structural innovation engine.

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“…The impact of political connections on financial markets is a much-studied topic in academia (Agrawal and Knoeber, 2001;Khwaja and Mian, 2005;Claessens et al, 2008;Boubakri et al, 2008Boubakri et al, , 2012Butler et al, 2009;Duchin and Sosyura, 2012;Kusnadi, 2019;Klusak et al, 2020). In particular, research using Chinese data has received much attention because China is a relation-centered society, and guanxi (personal networks in Chinese) plays a crucial role in lubricating business and helps companies compete for resources in both the private and public sectors (Park and Luo, 2001;Li et al, 2008;McNally, 2011;Tsai et al, 2019;Li and Cheng, 2020;Li and Jin, 2020;Gao et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

The Financial Value of the Within-Government Political Network: Evidence From Chinese Municipal Corporate Bonds

et al. 2021

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This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders' working experience to measure the political network, we find that this network reduces the bond issuance yield spreads by improving the credit ratings of the issuer, the local government financing vehicle. The relationship between political networks and issuance yield spreads is strengthened in areas where financial markets and legal systems are less developed.

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What do private firms do after losing political capital? Evidence from China

Cited by 31 publications

References 28 publications

Resignation of officials as independent directors and firm performance

Resignation of officials as independent directors and firm performance

Financial constraints, government subsidies, and corporate innovation

The Financial Value of the Within-Government Political Network: Evidence From Chinese Municipal Corporate Bonds

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