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The Value of Political Connections: Evidence from China's Anti-Corruption Campaign

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  • Palma, Nuno
  • Alonso, Marta
  • Simon-Yarza, Beatriz

Abstract

We study the value of the political connections of directors on Chinese boards. We build a new dataset that measures connections of directors to members of the Politburo via past school ties, and find that private firms with politically connected directors in the boardroom get on average about 16% higher subsidies over sales per firm (7 million yuan). Connected state-owned enterprises access debt at 11% cheaper cost, which translates into average savings of close to 32 million yuan per firm in lower interest payments. We find that the value of the political connections persisted after the Anti-Corruption Campaign of 2012. It became weaker for the cost of debt in state-owned enterprises, but stronger for subsidies to private firms. We argue that the value of connections in the private sector increased after the Anti-Corruption Campaign because they became a less risky alternative to corruption. We also show that connected firms do not perform better

Suggested Citation

  • Palma, Nuno & Alonso, Marta & Simon-Yarza, Beatriz, 2022. "The Value of Political Connections: Evidence from China's Anti-Corruption Campaign," CEPR Discussion Papers 16026, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16026
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    Keywords

    Corruption; China; Board of directors; Misallocation; Political connections;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • H0 - Public Economics - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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