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The value of political ties for firms experiencing enforcement actions: Evidence from China

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  • Yu, Xin
  • Zheng, Ying

Abstract

We study the value of political ties for firms experiencing enforcement actions. We find that stronger corporate political ties alleviate the negative market shocks caused by enforcement action announcements of listed firms in China, and the relationship between political ties and market reaction is more pronounced for enforcement actions that signal loss of market credibility than for enforcement actions that signal loss of political ties and in regions with greater government intervention. We further find that firms with stronger political ties experience larger increases in long-term debt after enforcement actions, suggesting that it is the investors' expectation of government support to connected firms that mitigates the negative market reaction.

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  • Yu, Xin & Zheng, Ying, 2019. "The value of political ties for firms experiencing enforcement actions: Evidence from China," The British Accounting Review, Elsevier, vol. 51(1), pages 24-45.
    • Handle: RePEc:eee:bracre:v:51:y:2019:i:1:p:24-45
    DOI: 10.1016/j.bar.2018.08.001
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    Cited by:

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    More about this item

    Keywords

    Political connections; Enforcement actions; Event study; Emerging markets; G32; G38; M41;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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