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Government connections and the persistence of profitability: Evidence from Chinese listed firms

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  • Liu, Li
  • Liu, Qigui
  • Tian, Gary
  • Wang, Peipei

Abstract

We find that state owned enterprises (SOEs hereafter) have lower (higher) mean-reverting rates when profitability is better (worse) than the norm; while non-SOEs with politically connected executives have lower (higher) mean-reverting rates when profitability is extremely better (worse) than the norm. In addition, SOEs controlled by the central government have lower mean-reverting rates than those controlled by local governments. Our results are robust to a series of robustness tests and a test using alternative measures of profitability. We argue that government connections help firms maintain a relatively competitive advantage and thus have an important influence on mean-reverting patterns of profitability for Chinese firms.

Suggested Citation

  • Liu, Li & Liu, Qigui & Tian, Gary & Wang, Peipei, 2018. "Government connections and the persistence of profitability: Evidence from Chinese listed firms," Emerging Markets Review, Elsevier, vol. 36(C), pages 110-129.
    • Handle: RePEc:eee:ememar:v:36:y:2018:i:c:p:110-129
    DOI: 10.1016/j.ememar.2018.04.002
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