Heterogeneous political strategies and the distribution of government relief loans: Evidence from the response to COVID-19 in China

How do firms’ political strategies affect the allocation of government relief loans by governments and banks during downturns? By distinguishing between two types of political strategies—political connections (PCs) and corporate social responsibility (CSR)—and using a dataset of Chinese firms during the COVID-19 pandemic, we find that (1) political strategies—and especially PCs—help firms win government relief loans and that the effect of CSR substitutes for that of PCs. (2) Political strategies are more likely to operate by mitigating information asymmetries than by fostering rent-seeking activities. (3) Both PCs and CSR can help firms be selected by the government as supporting candidates, but only PCs can facilitate firms in being chosen by commercial banks as final targets. (4) Firms that receive government relief loans are better off than their counterparts are. The results emphasize the value of unpacking the heterogeneity of political strategies and illuminate the importance of government–bank coordination in the distribution of government relief loans.