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The effect of regulating political connections: Evidence from China's board of directors ban

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  • Fan, Jijian

Abstract

There is a great deal of variation in how countries regulate the relationships between politicians and public-traded firms, but little evidence about how such policies affect firm performance. In 2013, China passed a new regulation that banned politicians from serving on the boards of directors of companies. Using a novel data set that links board members, government officials, and forced resignations, I estimate the effect of the policy on firm performance and stock returns. I find that the loss of a high-level politician significantly reduces a firm’s cumulative stock return and future profits. The effect is driven by officials from government-controlled public sectors and is larger when the firm is in low-marketized areas. The analysis provides important evidence about the efficacy of a commonly used policy tool for reducing political influence in the private sector.

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  • Fan, Jijian, 2021. "The effect of regulating political connections: Evidence from China's board of directors ban," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 553-578.
    • Handle: RePEc:eee:jcecon:v:49:y:2021:i:2:p:553-578
    DOI: 10.1016/j.jce.2020.10.003
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    More about this item

    Keywords

    Political connections; Government officials; Board of directors; Corruption;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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