Do political connections matter in accessing capital markets? Evidence from China

Bao, Xiaolu; Johan, Sofia; Kutsuna, Kenji

doi:10.1016/j.ememar.2016.08.009

Cited by 65 publications

(44 citation statements)

References 50 publications

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“…Many of the existing studies in the literature focus on certain categories. Those conducted by Fisman (2001) [1], Faccio et al (2006) [2], Faccio (2010) [3], Bao et al (2016) [4] and Su and Fung (2013) [5] analysed political connections and their influence on different parameters. The studies looked at study investment efficiency factors and ways of its measurement; Chen et al (2009) [9], Deng et al (2012) [10] and Pan et al (2017) [11] who devoted their investigations to the identification of the relationship between political ties and efficiency of a company's investment decisions.…”

Section: Introductionmentioning

confidence: 99%

“…Most of the described papers are devoted to the investigation of political connections and their influence on company's performance, value, capital access and other determinants in China [4,5,12,13]. This is because government in that country plays a great role there in every sector of the market, and a large amount of infor-mation about political ties is recorded in local databases.…”

Section: Introductionmentioning

confidence: 99%

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Do Political Connections Influence Investment Efficiency in Russian Companies?

Cherkasova¹,

Иванова²

2019

КФ

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The question as to whether political influence can benefit the commercial activity of companies, and the relatedquestions surrounding political corruption that arise, are of perennial fascination for persons at every level of societyand in every country. With this in mind, this article seeks to explore the relationship between political connections incommercial firms and investment efficiency. This relationship will be studied on an empirical basis, and will shed somelight on the actual parameters, mechanisms, and effects of political influence in the business sphere in the RussianFederation.In this research, we consider only direct relations between business operators and the members of Russian ministries,councils, political parties, heads of the regions and cities. These relationships are categorised as being politicallyinfluential depending on the status of the politician, and whether they are active at a federal, regional or municipallevel. Connections with such politicians are examined where there is evidence of direct links with company CEOs andchairmen of the boards of directors of companies.This research is carried out on the sample of 106 Russian non-financial companies for the period 2010–2015. 44companies from the final sample were considered as politically connected on at least one level. Some firms haveconnections more than at one level (11 companies). Companies have politically connected chairman of the board (36companies) more often than connected CEO (26 companies). Using regression analysis, we determined whether thepolitical ties in Russia have a positive or a negative impact on the investment expenditures of companies.Interestingly, and perhaps contrary to popular belief, we identified a negative relationship between political ties and theefficiency of investment decisions for individual companies. The presence of politically-connected CEOs at federal andregional levels is seen to have a significant negative impact on investment efficiency. However, our results also indicatethat the presence of politically-connected chairmen of the board which are active at the municipal level is correlatedwith efficient investment activity. This indicates that political influence at this level may be responsible for more prudentrecommendations regarding commercial and investment decisions. Overall, it can be seen that in this sample ofcompanies from the Russian Federation, the presence of state-tied representatives may be aligned with a tendency forcompanies to follow targets that are favourable for its government connections and not for the firm itself.Although political connections have a mixed impact on the company’s value, the relation with investment efficiency isprimarily negative. Thus, we may reason that the government has a strong power over politically-related companies.Such influences are linked with a tendency for companies to deviate from their primary goal of value maximisation.These results may indicate the influence of undue pressure from a government which strives to reach its own goalsthrough the mechanism of commercial activity, or perhaps the opportunistic behaviour of individuals in managementpositions who are motivated towards personal political gain at the expense of the company. Political connections have amixed effect on the company’s performance and investment efficiency, and we postulate that firms establish relationshipswith government officials pursuing the goal to obtain more advantageous position. The links between political operatorsand business activity demonstrated in this research undoubtedly highlight some uncomfortable areas of discourse inthe commercial sphere. On a granular level, further research into specific transactions and motivations may seem morea research area for journalists or law enforcement investigators, but this may be simply a popular prejudice. There iscertainly ample opportunity for expanding the scope of this study’s results. Beyond the interests of political, sociologicaland legal researchers, the data presented herein will be of immediate interest to persons operating in the commercial,business, and economic spheres of the Russian Federation and internationally.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Do Political Connections Influence Investment Efficiency in Russian Companies?

Cherkasova¹,

Иванова²

2019

КФ

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“…Khwaja and Mian (2005) andBao, Johan, and Kutsuna (2015) examine whether political connections affect capital market access in China. The general conclusion is that the market appear able to undo any biases associated with political connections.…”

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confidence: 99%

Corruption, Government Subsidies, and Innovation: Evidence from China

Fang

Lerner

et al. 2018

SSRN Journal

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and 71532012) and the Major Research Project of Philosophical and Social Sciences of China Education Ministry (15JZD019). Josh Lerner periodically receives compensation for advising institutional investors, private equity firms, corporate venture groups, and government agencies on topics related to entrepreneurship, innovation, and private capital. All errors are our own. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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“…This behaviour characterizes both state-owned and private firms and it is stronger in provinces where politicians tend to be rewarded for market activity advancements. Bao et al (2016)…”

Section: Political Connectionsmentioning

confidence: 99%

Initial Public Offerings in China: Underpricing, Statistics and Developing Literature

Azevedo¹,

Gűney

Leng

2018

SSRN Journal

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We review more than two decades of literature on initial public offerings (IPOs) in China, discussing the research hypotheses that have been studied as well as the main findings. We summarize past and current developments in the literature and highlight the research problems which have not yet been adequately resolved. We provide updated information on the popularity of IPOs and allocation mechanisms over the last 25 years as well as on the underpricing that is associated with the usage of each IPO allocation mechanism. We also suggest new avenues for future research, based on the identified gaps in the extant literature.

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Do political connections matter in accessing capital markets? Evidence from China

Cited by 65 publications

References 50 publications

Do Political Connections Influence Investment Efficiency in Russian Companies?

Do Political Connections Influence Investment Efficiency in Russian Companies?

Corruption, Government Subsidies, and Innovation: Evidence from China

Initial Public Offerings in China: Underpricing, Statistics and Developing Literature

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