IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v88y2024ics0927538x24002701.html
   My bibliography  Save this article

Does executives' political identity improve firm financial performance? Evidence from China

Author

Listed:
  • Miao, Yongming
  • Li, Yaokuang
  • Li, Zhiguang

Abstract

Using data from Chinese A-share listed companies between 2010 and 2021, we employ natural language processing techniques and word frequency statistical analysis to investigate the influence of executives' subjective political values on firm financial performance. We draw on social identity theory and find that executives' political identity significantly enhances firm financial performance, with government subsidies and corporate compliance behavior playing intermediary roles. Furthermore, the promotional effect is more pronounced for enterprises that are geographically closer to the government, have lower marketization and are in the central and western regions. Our study contributes to the literature on the subjective political attitudes of Chinese executives and enhances the understanding of the economic consequences of such relationships. Additionally, our research offers valuable insights into corporate performance in countries without partisan conflict.

Suggested Citation

  • Miao, Yongming & Li, Yaokuang & Li, Zhiguang, 2024. "Does executives' political identity improve firm financial performance? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24002701
    DOI: 10.1016/j.pacfin.2024.102518
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X24002701
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2024.102518?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jing Zhang & Justin Tan & Poh Wong, 2015. "When does investment in political ties improve firm performance? The contingent effect of innovation activities," Asia Pacific Journal of Management, Springer, vol. 32(2), pages 363-387, June.
    2. Liang, Yongyi & Yan, Ming & Law, Kenneth S. & Wang, Haibo & Chen, Yuanyi, 2021. "Integrating the bright and dark sides of leadership: An investigation of the intragroup and intergroup effects of leader group prototypicality," Journal of Business Research, Elsevier, vol. 133(C), pages 89-97.
    3. Gao, Weiwei & Huang, Zhen & Yang, Ping, 2019. "Political connections, corporate governance and M&A performance: Evidence from Chinese family firms," Research in International Business and Finance, Elsevier, vol. 50(C), pages 38-53.
    4. Gerber, Alan S. & Huber, Gregory A. & Washington, Ebonya, 2010. "Party Affiliation, Partisanship, and Political Beliefs: A Field Experiment," American Political Science Review, Cambridge University Press, vol. 104(4), pages 720-744, November.
    5. Sun, Rui & Zou, Ganna, 2021. "Political connection, CEO gender, and firm performance," Journal of Corporate Finance, Elsevier, vol. 71(C).
    6. Steven Greene, 2004. "Social Identity Theory and Party Identification," Social Science Quarterly, Southwestern Social Science Association, vol. 85(1), pages 136-153, March.
    7. Qi, Xiaoyan & Guo, Yanshan & Guo, Pibin & Yao, Xilong & Liu, Xiuli, 2022. "Do subsidies and R&D investment boost energy transition performance? Evidence from Chinese renewable energy firms," Energy Policy, Elsevier, vol. 164(C).
    8. Söderblom, Anna & Samuelsson, Mikael & Wiklund, Johan & Sandberg, Rickard, 2015. "Inside the black box of outcome additionality: Effects of early-stage government subsidies on resource accumulation and new venture performance," Research Policy, Elsevier, vol. 44(8), pages 1501-1512.
    9. Tenuta, Paolo & Cambrea, Domenico Rocco, 2022. "Corporate social responsibility and corporate financial performance: The role of executive directors in family firms," Finance Research Letters, Elsevier, vol. 50(C).
    10. Bernini, Cristina & Pellegrini, Guido, 2011. "How are growth and productivity in private firms affected by public subsidy? Evidence from a regional policy," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 253-265, May.
    11. Bhandari, Avishek & Golden, Joanna, 2021. "CEO political preference and credit ratings," Journal of Corporate Finance, Elsevier, vol. 68(C).
    12. Zhaohua Li, 2019. "Earnings‐based Delisting Regulations and Government Subsidies," Australian Accounting Review, CPA Australia, vol. 29(1), pages 281-298, March.
    13. Thomas M. Carsey & Geoffrey C. Layman, 2006. "Changing Sides or Changing Minds? Party Identification and Policy Preferences in the American Electorate," American Journal of Political Science, John Wiley & Sons, vol. 50(2), pages 464-477, April.
    14. Tsai, Li-Chuan & Zhang, Ruhui & Zhao, Cuifang, 2019. "Political connections, network centrality and firm innovation," Finance Research Letters, Elsevier, vol. 28(C), pages 180-184.
    15. Yanying Chen & Liang Ping & Feng Helen Liang, 2023. "Industry Reputation Crisis and Firm Certification: A Co-evolution Perspective," Journal of Business Ethics, Springer, vol. 186(4), pages 761-780, September.
    16. Luo, Guoliang & Liu, Yingxuan & Zhang, Liping & Xu, Xuan & Guo, Yiwei, 2021. "Do governmental subsidies improve the financial performance of China’s new energy power generation enterprises?," Energy, Elsevier, vol. 227(C).
    17. Funmi Ade‐Ajayi, 2004. "International Corporate Governance and the Responsibility of the Brand," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(2), pages 184-190, April.
    18. Cao, Xiaping & Pan, Xiaofei & Qian, Meijun & Tian, Gary Gang, 2017. "Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 1-14.
    19. Chen, Jin & Heng, Cheng Suang & Tan, Bernard C.Y. & Lin, Zhijie, 2018. "The distinct signaling effects of R&D subsidy and non-R&D subsidy on IPO performance of IT entrepreneurial firms in China," Research Policy, Elsevier, vol. 47(1), pages 108-120.
    20. Guo, Hai & Xu, Erming & Jacobs, Mark, 2014. "Managerial political ties and firm performance during institutional transitions: An analysis of mediating mechanisms," Journal of Business Research, Elsevier, vol. 67(2), pages 116-127.
    21. Llach, Josep & Sanchez-Famoso, Valeriano & Danes, Sharon M., 2023. "Unmasking nonfamily employees’ complex contribution to family business performance: A place identity theory approach," Journal of Family Business Strategy, Elsevier, vol. 14(4).
    22. Xuemei Xie & Qiwei Zhu & Ruoyi Wang, 2019. "Turning green subsidies into sustainability: How green process innovation improves firms' green image," Business Strategy and the Environment, Wiley Blackwell, vol. 28(7), pages 1416-1433, November.
    23. Shenggang Ren & Yue Wang & Yucai Hu & Ji Yan, 2021. "CEO hometown identity and firm green innovation," Business Strategy and the Environment, Wiley Blackwell, vol. 30(2), pages 756-774, February.
    24. Zhang, Huiming & Li, Lianshui & Zhou, Dequn & Zhou, Peng, 2014. "Political connections, government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China," Renewable Energy, Elsevier, vol. 63(C), pages 330-336.
    25. Yongqiang Gao & Taïeb Hafsi, 2015. "Government Intervention, Peers’ Giving and Corporate Philanthropy: Evidence from Chinese Private SMEs," Journal of Business Ethics, Springer, vol. 132(2), pages 433-447, December.
    26. Claudine Gartenberg & Andrea Prat & George Serafeim, 2019. "Corporate Purpose and Financial Performance," Organization Science, INFORMS, vol. 30(1), pages 1-18, February.
    27. Abhinav Gupta & Adam J. Wowak & Warren Boeker, 2022. "Corporate directors as heterogeneous network pipes: How director political ideology affects the interorganizational diffusion of governance practices," Strategic Management Journal, Wiley Blackwell, vol. 43(8), pages 1469-1498, August.
    28. Larcker, David F. & Rusticus, Tjomme O., 2010. "On the use of instrumental variables in accounting research," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 186-205, April.
    29. Jung, Jihye & Mittal, Vikas, 2020. "Political Identity and the Consumer Journey: A Research Review," Journal of Retailing, Elsevier, vol. 96(1), pages 55-73.
    30. Tong Xinle & Wang Zhen & Li Xinting, 2022. "The influence of government subsidy on enterprise innovation: based on Chinese high-tech enterprises," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 1481-1499, December.
    31. Li, Xiaoying & Jin, Yue, 2021. "Do political connections improve corporate performance? Evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 41(C).
    32. Min Zhang & Guangming Gong & Si Xu & Xun Gong, 2018. "Corporate Fraud and Corporate Bond Costs: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(5), pages 1011-1046, April.
    33. Yang, Rui & Tang, Wansheng & Zhang, Jianxiong, 2021. "Technology improvement strategy for green products under competition: The role of government subsidy," European Journal of Operational Research, Elsevier, vol. 289(2), pages 553-568.
    34. Hobolt, Sara B. & Leeper, Thomas J. & Tilley, James, 2021. "Divided by the Vote: Affective Polarization in the Wake of the Brexit Referendum," British Journal of Political Science, Cambridge University Press, vol. 51(4), pages 1476-1493, October.
    35. Wong, Wai-Yan & Hooy, Chee-Wooi, 2018. "Do types of political connection affect firm performance differently?," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 297-317.
    36. Yu, Yin & Chi, Jing, 2021. "Political embeddedness, media positioning and corporate social responsibility: Evidence from China," Emerging Markets Review, Elsevier, vol. 47(C).
    37. Gul, Ferdinand A. & Munir, Sa'adiah & Zhang, Liang, 2016. "Ethnicity, politics and firm performance: Evidence from Malaysia," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 115-129.
    38. Xing, Lu & Gonzalez, Angelica & Sila, Vathunyoo, 2021. "Does cooperation among women enhance or impede firm performance?," The British Accounting Review, Elsevier, vol. 53(4).
    39. Yalin Wang & Yaokuang Li & Juan Wu & Li Ling & Dan Long, 2023. "Does digitalization sufficiently empower female entrepreneurs? Evidence from their online gender identities and crowdfunding performance," Small Business Economics, Springer, vol. 61(1), pages 325-348, June.
    40. Cai, Weixing & Hu, Feng & Xu, Fangming & Zheng, Liyi, 2022. "Anti-corruption campaign and corporate cash holdings: Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PA).
    41. Fuming Jiang & Tatiana Zalan & Herman H. M. Tse & Jie Shen, 2018. "Mapping the Relationship Among Political Ideology, CSR Mindset, and CSR Strategy: A Contingency Perspective Applied to Chinese Managers," Journal of Business Ethics, Springer, vol. 147(2), pages 419-444, January.
    42. Ran Duchin & Zhenyu Gao & Haibing Shu & David Denis, 2020. "The Role of Government in Firm Outcomes," The Review of Financial Studies, Society for Financial Studies, vol. 33(12), pages 5555-5593.
    43. Zhishuang Zhu & Hua Liao, 2019. "Do subsidies improve the financial performance of renewable energy companies? Evidence from China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(1), pages 241-256, January.
    44. Irena Hutton & Danling Jiang & Alok Kumar, 2015. "Political Values, Culture, and Corporate Litigation," Management Science, INFORMS, vol. 61(12), pages 2905-2925, December.
    45. Matthew Feinberg & Alexa M Tullett & Zachary Mensch & William Hart & Sara Gottlieb, 2017. "The political reference point: How geography shapes political identity," PLOS ONE, Public Library of Science, vol. 12(2), pages 1-13, February.
    46. Igor Goncharov & Joerg Richard Werner & Jochen Zimmermann, 2006. "Does Compliance with the German Corporate Governance Code Have an Impact on Stock Valuation? An empirical analysis," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(5), pages 432-445, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Wenwen & Chiu, Yi-Bin, 2023. "Country risks, government subsidies, and Chinese renewable energy firm performance: New evidence from a quantile regression," Energy Economics, Elsevier, vol. 119(C).
    2. Hoepner, Andreas G.F. & Lin, Ming-Tsung, 2022. "Do shareholder views affect corporate political activities?," International Review of Financial Analysis, Elsevier, vol. 84(C).
    3. Anahit Mkrtchyan, & Sandvik, Jason & Xu, Da, 2024. "Employee responses to CEO activism," Journal of Accounting and Economics, Elsevier, vol. 78(1).
    4. Luan, Ranran & Lin, Boqiang, 2022. "Positive or negative? Study on the impact of government subsidy on the business performance of China's solar photovoltaic industry," Renewable Energy, Elsevier, vol. 189(C), pages 1145-1153.
    5. Zhang, Wenwen & Chiu, Yi-Bin & Hsiao, Cody Yu-Ling, 2022. "Effects of country risks and government subsidies on renewable energy firms’ performance: Evidence from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    6. GuoHua Cao & WenJun Geng & Jing Zhang & Qi Li, 2023. "Social network, financial constraint, and corporate innovation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 667-692, September.
    7. Brahma, Sanjukta & Zhang, Jing & Boateng, Agyenim & Nwafor, Chioma, 2023. "Political connection and M&A performance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 372-389.
    8. Boubaker, Sabri & Liu, Pei-Zhi & Ren, Yi-Shuai & Ma, Chao-Qun, 2024. "Do anti-corruption campaigns affect corporate environmental responsibility? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    9. Xiaofeng Xu & Xiangyu Chen & Yi Xu & Tao Wang & Yifan Zhang, 2022. "Improving the Innovative Performance of Renewable Energy Enterprises in China: Effects of Subsidy Policy and Intellectual Property Legislation," Sustainability, MDPI, vol. 14(13), pages 1-24, July.
    10. Licheng Yang & Shijie Song & Chunlin Liu, 2024. "Green signals: The impact of environmental protection support policies on firms' green innovation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3258-3278, May.
    11. Milner, Mattie & Rice, Stephen & Rice, Connor, 2019. "Support for environmentally-friendly airports influenced by political affiliation and social identity," Technology in Society, Elsevier, vol. 59(C).
    12. Rocca, Maurizio La & Fasano, Francesco & Cappa, Francesco & Neha, Neha, 2022. "The relationship between political connections and firm performance: An empirical analysis in Europe," Finance Research Letters, Elsevier, vol. 49(C).
    13. Ganguly, Kousik & Mishra, Ajay Kumar & Parikh, Bhavik, 2023. "Do Political connections influence investment decisions? Evidence from India," Finance Research Letters, Elsevier, vol. 52(C).
    14. Bravo-Urquiza, Francisco & Moreno-Ureba, Elena, 2021. "Does compliance with corporate governance codes help to mitigate financial distress?," Research in International Business and Finance, Elsevier, vol. 55(C).
    15. Yin Bai & Yingzhao Xiao & Jingzhou Pan & Youchao Tan & Cheng Zeng, 2024. "When political ties matter for firm performance? The role of CEO’s political utilization orientation and prosocial orientation," Asia Pacific Journal of Management, Springer, vol. 41(3), pages 1395-1420, September.
    16. Meng, Bin & Lin, Zhipeng & Liu, Tao & Shi, Baofeng, 2024. "Political connection and corporate senior-care investment: Active investment or passive involvement?," Finance Research Letters, Elsevier, vol. 67(PA).
    17. Hailin Yao & Wei Huang, 2022. "Effect of R&D Subsidies on External Collaborative Networks and the Sustainable Innovation Performance of Strategic Emerging Enterprises: Evidence from China," Sustainability, MDPI, vol. 14(8), pages 1-19, April.
    18. Li, Qian & Wang, Shihao & Song, Victor, 2023. "Product competition, political connections, and the costs of high leverage," Journal of Empirical Finance, Elsevier, vol. 74(C).
    19. Weiqi Dai & Mingqing Liao & Qiao Lin & Jincai Dong, 2022. "Does entrepreneurs’ proactive attention to government policies matter?," Asian Business & Management, Palgrave Macmillan, vol. 21(3), pages 396-431, July.
    20. Lingli Qing & Dongphil Chun & Abd Alwahed Dagestani & Peng Li, 2022. "Does Proactive Green Technology Innovation Improve Financial Performance? Evidence from Listed Companies with Semiconductor Concepts Stock in China," Sustainability, MDPI, vol. 14(8), pages 1-20, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24002701. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.