Making Political Connections Work Better: Information Asymmetry and the Development of Private Firms in China

2021 ◽  
Author(s):  
Guanchun Liu ◽  
Ge Xin ◽  
Jing Li
Keyword(s):  
Information Asymmetry ◽  
Political Connections ◽  
Private Firms

China’s anti-corruption campaign, political connections and private firms’ debt financing

2019 ◽  
Vol 9 (4) ◽  
pp. 521-553 ◽  
Author(s):  
Yiming Hu ◽  
Mingxia Xu
Keyword(s):  
Information Asymmetry ◽  
Rent Seeking ◽  
Debt Financing ◽  
Resource Acquisition ◽  
Political Connections ◽  
Private Firms ◽  
Content Type ◽  
National Congress ◽  
The Impact ◽  
New Evidence

Purpose The purpose of this paper is to shed light on the deleveraging impact of the anti-corruption campaign since the 18th National Congress of the Communist Party of China (CPC) on private firms with political connections, relative to those without political connections. Design/methodology/approach In this paper, taking the anti-corruption campaign employed from the end of 2012 as an exogenous shock, the authors design a quasi-experiment difference-in-difference approach to examine how the loss and failure of political connections impacts private firms’ debt financing. Findings The authors find that the loss and failure of political connections following the anti-corruption campaign since the 18th CPC National Congress causes the yearly new debt ratios of treatment firms with political connections to decrease, relative to those of control firms without political connections. This outcome is more pronounced for provinces with more cadres excluded in the anti-corruption campaign since the 18th CPC National Congress, which rendered politically connected firms susceptible to lose connections with central or provincial cadres. To explore the mechanism, the authors find that following the anti-corruption campaign since the 18th CPC National Congress, politically connected firms limit rent-seeking activities, whereas resource acquisition is weakened. The authors also find that the impact of the anti-corruption campaign since the 18th CPC National Congress on the debt financing of politically connected firms, relative to their counterparts, is more pronounced for groups with high levels of information asymmetry and for less explicit guarantee groups. Finally, politically connected firms are more likely to be dominated by internal funds in dealing with a loss of advantages in debt financing, compared with their counterparts without political connections. Research limitations/implications The findings in this study suggest that the loss or failure of previous political connections following Xi’s anti-corruption campaign make politically connected firms lose the advantages in debt financing through the rent-seeking, resource acquisition, information asymmetry, implicit guarantee channels, which provide new evidence for research on the impact of the anti-corruption campaign since the 18th CPC National Congress on private firms’ financing behaviors via the loss or failure of existing political connections. Practical implications The findings in the study will have some inspiration for policy makers and entrepreneur. Originality/value This study provides new evidence on the different impacts of Xi’s anti-corruption campaign on private firm’s debt financing between politically connected and unconnected firms.

Religiosity and Political Connections of Private Firms in China

2019 ◽  
pp. 1-21
Author(s):  
Chun Liu ◽  
Yi Zhang
Keyword(s):  
Political Connections ◽  
Private Firms

scholarly journals The Investment Efficiency Of Private And Public Firms: Evidence From Korea

2015 ◽  
Vol 31 (4) ◽  
pp. 1387 ◽  
Author(s):  
Keehwan Kim ◽  
Ohjin Kwon
Keyword(s):  
Information Asymmetry ◽  
Financial Reporting ◽  
Agency Problem ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Private Firms ◽  
Investment Efficiency ◽  
Public Firms ◽  
Private And Public ◽  
The Difference

<p class="s0">This study examines the investment efficiency of private and public firms in Korea. Prior studies suggest that the investment efficiency of firms can change according to the companies' agency problem caused by the existence of information asymmetry. Moreover, they argue that there is less information asymmetry in private firms than in public firms, because the major investors of private firms have access to the internal information of the companies. We extend these studies by comparing the investment efficiency of private and public firms using an extended audited financial dataset of Korean firms. Our results show that the investment efficiency of private firms is higher than that of public firms, because the agency problem of the former is lower than that of the latter. Additionally, private firms invest more efficiently in R&amp;D and capital expenditures than public firms. Further, when we use alternative exogenous firm-specific proxies to measure the likelihood of over or under-investment, the results are substantially consistent with the main results. Finally, we re-test our hypotheses by including financial reporting quality proxies as control variables in the main regression model. These investigations further support our main results. Our study contributes to emerging literature on the difference between private and public firms by showing that the investment efficiency of the former is different from that of the latter. In addition, this study provides additional evidence on the agency problem that affects firms' investment decisions.</p>

scholarly journals The Relationship Among Anti-Corruption Campaigns, Political Connections, and Information Asymmetry on Firm Performance

2021 ◽  
Author(s):  
Han-Fang Tsai ◽  
Tsui-Jung Lin ◽  
Lien-Wen Liang ◽  
Nur Imamah
Keyword(s):  
Firm Performance ◽  
Information Asymmetry ◽  
Political Connections ◽  
The Relationship

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

2011 ◽  
Vol 17 (2) ◽  
pp. 229-243 ◽  
Author(s):  
Charles J.P. Chen ◽  
Zengquan Li ◽  
Xijia Su ◽  
Zheng Sun
Keyword(s):  
Control Structure ◽  
Rent Seeking ◽  
Political Connections ◽  
Private Firms

Political connections, financing and firm performance: Evidence from Chinese private firms

2008 ◽  
Vol 87 (2) ◽  
pp. 283-299 ◽  
Author(s):  
Hongbin Li ◽  
Lingsheng Meng ◽  
Qian Wang ◽  
Li-An Zhou
Keyword(s):  
Firm Performance ◽  
Political Connections ◽  
Private Firms

Impact of ownership types and political connection on private equity placement

2017 ◽  
Vol 8 (4) ◽  
pp. 390-403 ◽  
Author(s):  
Gaoliang Tian ◽  
Yi Si ◽  
M.M Fonseka
Keyword(s):  
Private Equity ◽  
Political Connections ◽  
Private Firms ◽  
Political Connection ◽  
Content Type ◽  
Test Hypothesis ◽  
Listed Firms ◽  
Ultimate Ownership ◽  
The Impact ◽  
Ownership Types

Purpose In China, private equity placement (PEP) has become the most important equity refinancing method because most listed firms issue new stocks in this method. However, previous literature has not paid much attention to the impact of political connections on PEP. In this paper, the authors aim to focus on the effect of ultimate ownership types and political connections on approval, approval time, approval results and proceeds of PEP. Besides that the authors also explore the influence of different types and levels of political connections on PEP. Design/methodology/approach This study investigates the impact of ultimate ownership and political connections of private firms on the approval of PEPs. The authors obtain a final sample of 1,651 private placement events of Chinese-listed firms. To test the hypothesis that the authors developed in this paper, the authors use empirical models from the existing literature about political connections and corporate finance. They establish multiple linear regressions to test Hypothesis 1 and 3 and introduce a logit model to test Hypothesis 2. Findings First, this study documents that state-owned firms have significant advantages over private firms in approval procedure. Second, political connections seem to help private firms obtain approval of placements from China Securities Regulatory Commission. Third, political connections through government officers are not useful for firms to obtain refinance resources, whereas the connections of being members of Chinese People’s Political Consultative Conference and People’s Congress are the two valuable types of political connections to help private firms obtain approval. Originality/value This paper has three main contributions to the previous literature. The first contribution is to provide an evidence for the relation between political connections and PEP approval procedures. The second contribution is to provide a comparison between government officer’s connection and social title’s connection. The third contribution of this paper is to reveal the influence of non-disclosed political connection on PEP approval. All the three contributions are important for understanding the relation between political connections and firm refinancial policy.

Sign in / Sign up

Export Citation Format

Share Document