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Political capital and physical capital: Substitute or complement? Evidence from China's anti-corruption campaign

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  • Cheng, Lei

Abstract

How political capital affects physical capital investment is controversial in the literature. This paper explains the contradictory relationship between political and physical capitals. Using an exogenous shock (leading to a sudden reduction in political capital) and the DID estimation, we find that physical capital complements political capital for state-owned enterprises (SOEs) while this relationship is substitutional for private firms. This result can be explained by the changes in firms' economic performance after the reduction in political capital. Our findings provide an important policy implication. That is, governments should lessen policy burdens on SOEs and reduce institutional discrimination against private firms.

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  • Cheng, Lei, 2022. "Political capital and physical capital: Substitute or complement? Evidence from China's anti-corruption campaign," Emerging Markets Review, Elsevier, vol. 51(PB).
    • Handle: RePEc:eee:ememar:v:51:y:2022:i:pb:s1566014122000036
    DOI: 10.1016/j.ememar.2022.100886
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    More about this item

    Keywords

    Political capital; Physical capital; Mandatory resignation; Substitute; Complement;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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