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The value of political connections in opaque firms: Evidence from China's file 18

Author

Listed:
  • Hu, Yi
  • Wang, Changyun
  • Xiao, Gang
  • Zeng, Jianyu

Abstract

We examine the value of political connections in opaque firms under the setting of China's File 18. The Chinese central government has enforced File 18 since 2013 and exogenously constrained firms' political connections through independent boards. We find that the value of firms with politically-connected independent directors has significantly declined after the enforcement of File 18 only for firms with relatively higher degrees of information asymmetry. The value decline is greater among opaque firms with greater external financial dependence or lower credit worthiness, and is manifested in the drop of external financing, investments and sales growth among opaque firms. Our findings are consistent with that political connections are more conductive for firms that are more opaque by providing external financing support.

Suggested Citation

  • Hu, Yi & Wang, Changyun & Xiao, Gang & Zeng, Jianyu, 2019. "The value of political connections in opaque firms: Evidence from China's file 18," Pacific-Basin Finance Journal, Elsevier, vol. 55(C), pages 329-351.
    • Handle: RePEc:eee:pacfin:v:55:y:2019:i:c:p:329-351
    DOI: 10.1016/j.pacfin.2019.05.001
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    Citations

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    Cited by:

    1. Wang, Xiaoming & Xu, Tingting, 2022. "Pay of political directors in China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    2. Nan Zhang & Qiaozhuan Liang & Huiying Li & Xiao Wang, 2022. "The organizational relationship–based political connection and debt financing: Evidence from Chinese private firms," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 69-105, January.
    3. Qingyuan Yang & Shaorong Xu, 2022. "The Relationship between the Political Connections and Green Innovation Development of Chinese Enterprises—Empirical Analysis Based on Panel Data of Chinese A-Share Listed Companies," Sustainability, MDPI, vol. 14(20), pages 1-18, October.
    4. Xiao, Gang & Shen, Sichen, 2022. "To pollute or not to pollute: Political connections and corporate environmental performance," Journal of Corporate Finance, Elsevier, vol. 74(C).
    5. Liu, Shiyuan & Du, Jiang & Zhang, Weike & Tian, Xiaoli & Kou, Gang, 2021. "Innovation quantity or quality? The role of political connections," Emerging Markets Review, Elsevier, vol. 48(C).

    More about this item

    Keywords

    Political connection; Firm value; Information asymmetry; China's File 18;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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