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The Matching Of Heterogeneous Firms And Politicians

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  • MAGGIE XIAOYANG CHEN

Abstract

We use a unique Chinese firm-director panel dataset and a simple assignment model to examine the matching mechanism of heterogeneous firms and politicians. Based on 36,308 detailed biographies, we identify directors that previously held bureaucratic positions and classify the rank of each position in the Chinese political hierarchy. We address three questions using this direct measure of political capital: First, how do firms with heterogeneous productivity match with politicians with different political ability? Second, what determines the price of political capital? Finally, is there significant short-term return from political investment? Our results indicate that more productive firms are more likely to hire politically endowed individuals. The incentive increases in the dependence on external financing and decreases in the extent of foreign ownership. Conditional on the probability of being hired, individuals with greater political ability receive more compensation than their co-workers. One-step increase in political ladder from municipal to provincial level is equivalent to an annual pay increase of US$17,359. Education attainment, on the other hand, has little effect. The estimated return of political investment is sensitive to the control of matching, stressing the importance of taking into account the endogeneity of politician recruitment.
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  • Maggie Xiaoyang Chen, 2013. "The Matching Of Heterogeneous Firms And Politicians," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1502-1522, April.
  • Handle: RePEc:bla:ecinqu:v:51:y:2013:i:2:p:1502-1522
    DOI: j.1465-7295.2011.00450.x
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    2. Elise S. Brezis & Joël Cariolle, 2017. "Financial Sector Regulation and the Revolving Door in US Commercial Banks," Studies in Political Economy, in: Norman Schofield & Gonzalo Caballero (ed.), State, Institutions and Democracy, pages 53-76, Springer.
    3. Taining Wang & Jinjing Tian & Feng Yao, 2021. "Does high debt ratio influence Chinese firms’ performance? A semiparametric stochastic frontier approach with zero inefficiency," Empirical Economics, Springer, vol. 61(2), pages 587-636, August.
    4. Fang, Mingyue, 2014. "先天优势还是后天努力?——国企级别对全要素生产率影响的实证研究 [Innate Advantages or Hard Work? An Empirical Study on the Impacts of SOEs’ Administrative Level on Total Factor Productivity]," MPRA Paper 60439, University Library of Munich, Germany.
    5. Elise S. Brezis & Joel Cariolle, 2014. "The Revolving Door Indicator: Estimating the Distortionary Power of the Revolving Door," Working Papers 2014-13, Bar-Ilan University, Department of Economics.
    6. He, Qing & Li, Xiaoyang & Zhu, Wenyu, 2020. "Political connection and the walking dead: Evidence from China's privately owned firms," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1056-1070.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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