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Mixing business with politics: Political participation by entrepreneurs in China

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  • Feng, Xunan
  • Johansson, Anders C.
  • Zhang, Tianyu

Abstract

We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and subsequent change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.

Suggested Citation

  • Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2015. "Mixing business with politics: Political participation by entrepreneurs in China," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 220-235.
    • Handle: RePEc:eee:jbfina:v:59:y:2015:i:c:p:220-235
    DOI: 10.1016/j.jbankfin.2015.06.009
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    More about this item

    Keywords

    Political participation; Entrepreneurs; Rent seeking; Debt financing; Tax burden; Government subsidies; China;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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