Red Capitalists: Political Connections and Firm Performance in China

16 Pages Posted: 18 Oct 2010

See all articles by Jun Du

Jun Du

Aston University, Aston Business School, Economics and Strategy

Sourafel Girma

Nottingham University Business School

Abstract

Using a unique firm level data, this paper analyses the role of political connections in the post-entry performance of private start-up companies in China. It documents robust evidence that political affiliation enhances firms' survival and growth prospects. But interestingly politically neutral start-ups enjoy faster productivity improvements conditional on survival. In addition, the benefits of political connections are largely confined to firms associated with local or top level governments, and they are more pronounced in capital-intensive industries. We conclude that the close association between the state and a segment of the business community is leading to sub-optimal resource allocation in the economy by interfering with the process of market selection.

Suggested Citation

Du, Jun and Girma, Sourafel, Red Capitalists: Political Connections and Firm Performance in China. Kyklos, Vol. 63, Issue 4, pp. 530-545, November 2010. Available at SSRN: https://ssrn.com/abstract=1692947 or http://dx.doi.org/10.1111/j.1467-6435.2010.00486.x

Jun Du

Aston University, Aston Business School, Economics and Strategy ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom
004401212043340 (Phone)

HOME PAGE: http://www.abs.aston.ac.uk/newweb/staff/detail.asp/sfldStaffID=A0000717

Sourafel Girma

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/~lizsmg/

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