Business Cycles, Political Connectedness, and Firm Performance in China
- Business Cycles, Political Connectedness, and Firm Performance in China
- Wang, Shun
- Issue Date
- Series/Report no.
- KDI School Working Paper Series;WP16-12
- In this paper I examine the impact of firms’ political connectedness on firm
performance in private listed Chinese firms in the manufacturing sector, exploiting a policy
shock, that is, the 4-trillion-yuan ($586-billion) economic stimulus plan in 2009 in response to
the 2008 financial crisis. I use the difference-in-difference (DID) method to estimate the
impact of political connectedness, comparing the change of firm performance in association
with the stimulus between politically connected firms and non-connected ones. I find that
political connectedness, particularly executives or directors being political delegates, enable
firms to have better access to bank credit but have no direct impact on firm sales. Moreover,
the two types of political connectedness, being political delegates or former officials, have
different impact on firm profitability.
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