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Political Connections, Government Regulations and Risk-Taking ¡ª Evidence From China

Author

Listed:
  • Shangzhou Ji

    (School of Finance, Shanghai University of International Business and Economics, Shanghai 201620, China)

  • George Yungchih Wang

    (Faculty of International Liberal Arts, Soka University, Tokyo-to, Hachioji-shi Tangi-cho 1-236, Japan)

Abstract

Sufficient evidence suggests that enterprises under strong government regulations suffer the economic effects of political connections, which not only leads to competitive disadvantages and loss of innovation, but also less willingness to take risks. This paper explores the relationship between political connections and corporate risk-taking behavior in corporate governance. Specifically, in 2008, the Chinese government announced new policies to regulate government officials concurrently holding the positions of independent directors in firms. We sample publicly listed firms in the Chinese A-share market over the period of 2005¨C2010 and investigate changes in risk-taking behavior due to the new policies. Our findings indicate that a reduction in politically connected independent directors may encourage risk-taking behavior subject to the factors of state ownership, industry regulations, local government control, and corporate characteristics.

Suggested Citation

  • Shangzhou Ji & George Yungchih Wang, 2018. "Political Connections, Government Regulations and Risk-Taking ¡ª Evidence From China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 13(4), pages 655-684, December.
    • Handle: RePEc:fec:journl:v:13:y:2018:i:4:p:655-684
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-007-018-0030-7
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    More about this item

    Keywords

    political connections; government regulations; risk-taking; independent directors;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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