Does Market Transition Eclipse the Value of Firms’ Political Connections? A Longitudinal Study of Publicly Listed Firms in China

Posted: 14 Jan 2012 Last revised: 31 Dec 2013

See all articles by Nan Jia

Nan Jia

University of Southern California - Marshall School of Business

Jing Shi

Macquarie University

Yongxiang Wang

University of Southern California - Marshall School of Business

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Date Written: March 6, 2012

Abstract

Has the value of firms’ political connections declined during the course of China’s market transition? Some argue that China has experienced a tipping point after which the importance of political connections in conducting business has diminished, whereas others expect the value of political connections to remain resilient. Based on publicly listed firms in the Chinese stock market from 1992 to 2007, our data show that political connections enhanced firm value more substantially as economic liberalization progressed over time. We argue that, in the absence of political reforms, economic reforms actually strengthen, rather than eclipse, the value of political connections for firms. This effect is more pronounced in more competitive markets than in less competitive ones and for smaller firms than for larger firms.

Keywords: Political Connections, Political Reforms, Market Transition

JEL Classification: G32; G34; G38

Suggested Citation

Jia, Nan and Shi, Jing and Wang, Yongxiang, Does Market Transition Eclipse the Value of Firms’ Political Connections? A Longitudinal Study of Publicly Listed Firms in China (March 6, 2012). Available at SSRN: https://ssrn.com/abstract=1985131 or http://dx.doi.org/10.2139/ssrn.1985131

Nan Jia

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Yongxiang Wang (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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