The Value of Political Connections: Evidence from China's Anti-Corruption Campaign

69 Pages Posted: 14 May 2021 Last revised: 4 Feb 2022

See all articles by Marta Alonso

Marta Alonso

University of Navarra

Nuno Pedro G. Palma

University of Manchester

beatriz Simon

University of Navarra

Date Written: April 2021

Abstract

We study the value of the political connections of directors on Chinese boards. We build a new dataset that measures connections of directors to members of the Politburo via past school ties, and find that private firms with politically connected directors in the boardroom get on average about 16% higher subsidies over sales per firm (7 million yuan). Connected state-owned enterprises access debt at 11% cheaper cost, which translates into average savings of close to 32 million yuan per firm in lower interest payments. We find that the value of the political connections persisted after the Anti-Corruption Campaign of 2012. It became weaker for the cost of debt in state-owned enterprises, but stronger for subsidies to private firms. We argue that the value of connections in the private sector increased after the Anti-Corruption Campaign because they became a less risky alternative to corruption. We also show that connected firms do not perform better.

Keywords: Board Of Directors, China, Corruption, Misallocation, Political Connections

JEL Classification: G3, H0, O1, P2

Suggested Citation

Alonso, Marta and Palma, Nuno Pedro G. and Simon, beatriz, The Value of Political Connections: Evidence from China's Anti-Corruption Campaign (April 2021). CEPR Discussion Paper No. DP16026, Available at SSRN: https://ssrn.com/abstract=3846113

Marta Alonso (Contact Author)

University of Navarra ( email )

Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain

Nuno Pedro G. Palma

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

Beatriz Simon

University of Navarra ( email )

Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain

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