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Political Connections and Government Subsidies: Evidence from Financially Distressed Firms in China

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  • Qizhi Tao
  • Yicheng Sun
  • Yingjun Zhu
  • Xiaolin Yang

Abstract

Previous studies report mixed evidence regarding the effect of political connections on firm value. We seek new evidence in China, an important emerging market with a hallmark of a relationship-based economy. Using financially distressed firms (special treatment or ST firms) as a unique sample, we identify a direct channel through which political connections enhance firm value by showing that politically connected firms receive more government subsidies. Moreover, such effect becomes stronger for state-owned enterprises (SOEs), for firms with a better chance of survival, and after the government implemented a new policy to more strictly enforce the delisting in 2012.

Suggested Citation

  • Qizhi Tao & Yicheng Sun & Yingjun Zhu & Xiaolin Yang, 2017. "Political Connections and Government Subsidies: Evidence from Financially Distressed Firms in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1854-1868, August.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:8:p:1854-1868
    DOI: 10.1080/1540496X.2017.1332592
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    Cited by:

    1. Li, Shuangyan, 2022. "Natural extreme events, government subsidies and corporate environment responsibility: Evidence from China's energy sector," Energy Economics, Elsevier, vol. 114(C).
    2. Yu Wang & Xiaoying Chang & Tienan Wang, 2023. "Government directors as a double‐edged sword for strategic change: Strong resource provision but weak monitoring," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1802-1819, April.
    3. Li, Xiao-Lin & Li, Jingya & Wang, Jia & Si, Deng-Kui, 2021. "Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 99(C).
    4. Zhenji Jin & Yue Shang & Jian Xu, 2018. "The Impact of Government Subsidies on Private R&D and Firm Performance: Does Ownership Matter in China’s Manufacturing Industry?," Sustainability, MDPI, vol. 10(7), pages 1-20, June.
    5. Yi-Chang Chen & Yi-Xuan Fu & Yang Qiao & Shih-Ming Kuo, 2023. "Do Subsidy Policy and Transparency Impact Firm Value in the New Energy Industry? Evidence from Data Envelopment Analysis-Based Measurement of Corporate Subsidy Performance," Sustainability, MDPI, vol. 15(13), pages 1-20, June.
    6. Han Yu & Abraham Nahm & Zengji Song, 2023. "State‐owned enterprises' political capital, city administrative rank and economic resources acquisition: Empirical evidence from Chinese capital markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 28-42, January.
    7. Zhang, Wenwen & Chiu, Yi-Bin & Hsiao, Cody Yu-Ling, 2022. "Effects of country risks and government subsidies on renewable energy firms’ performance: Evidence from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    8. Jiahui Xu & Chee-Pung Ng & Toong Hai Sam & Asokan Vasudevan & Poh Kiong Tee & Alex Hou Hong Ng & Wong Chee Hoo, 2023. "Fiscal and Tax Policies, Access to External Financing and Green Innovation Efficiency: An Evaluation of Chinese Listed Firms," Sustainability, MDPI, vol. 15(15), pages 1-19, July.
    9. Shen, Huayu & Hou, Fei & Peng, Miaowei & Xiong, Hao & Zuo, Haohao, 2021. "Economic policy uncertainty and corporate tax avoidance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    10. Jin-hui Luo & Zeyue Huang & Ruichao Zhu, 2021. "Does media coverage help firms “lobby” for government subsidies? Evidence from China," Asia Pacific Journal of Management, Springer, vol. 38(1), pages 259-290, March.
    11. Tao, Qizhi & Li, Haoyu & Wu, Qun & Zhang, Ting & Zhu, Yingjun, 2019. "The dark side of board network centrality: Evidence from merger performance," Journal of Business Research, Elsevier, vol. 104(C), pages 215-232.
    12. Qiao, Lu & Fei, Junjun, 2022. "Government subsidies, enterprise operating efficiency, and “stiff but deathless” zombie firms," Economic Modelling, Elsevier, vol. 107(C).
    13. Kotcharin, Suntichai & Maneenop, Sakkakom & Jaroenjitrkam, Anutchanat, 2023. "The impact of government policy responses on airline stock return during the COVID-19 crisis," Research in Transportation Economics, Elsevier, vol. 99(C).
    14. Feng, Lingbing & Fu, Tong & Kutan, Ali M., 2019. "Can government intervention be both a curse and a blessing? Evidence from China's finance sector," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 71-81.
    15. Zhao, Yujie & Zhou, Donghua & Zhao, Kangsheng & Zhou, Ping, 2019. "Is the squeaky wheel getting the grease? Earnings management and government subsidies," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 297-312.
    16. Yu He & Lei Xu & Minhua Yang, 2021. "The impact of tunnelling on financial distress and resolution: Evidence from listed firms in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1773-1792, April.
    17. Lu, Shenghua & Wang, Hui, 2023. "How revolving-door recruitment makes firms stand out in land market: Evidence from China," China Economic Review, Elsevier, vol. 78(C).
    18. Brodmann, Jennifer & Unsal, Omer & Hassan, M. Kabir, 2019. "Political lobbying, insider trading, and CEO compensation," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 548-565.
    19. Zhi Su & Bo Yi & Linan Wang, 2022. "Is corporate philanthropy a pretext for executives' excess perk consumption? Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4010-4027, December.
    20. Zhang, Wenwen & Chiu, Yi-Bin, 2023. "Country risks, government subsidies, and Chinese renewable energy firm performance: New evidence from a quantile regression," Energy Economics, Elsevier, vol. 119(C).

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