The Impact of CEO Political Connections: A Study on Management Performance in China

Abstract

This paper researching whether the management performance of the Chief Executive Officer (CEO) in Chinese listed companies is associated with political connections uses the data envelopment analysis (DEA) approach with data from 389 companies in China and demonstrates that chief executive officers' political connection is negatively associated with the management performance. There are three reasons. First, an Interest mismatch occurring between the shareholders and government would hurt the management's decision-making process and eliminate the benefits of political connection. Second, China is a country with a very strict legal system. Any action that uses public resources to seek private interest is strictly prohibited and will even be considered a crime in China. The CEO's political connection does not bring special resources to the company. At last, China has an open and efficient market system, and any enterprise can obtain the required resources in the open market.