Political Connections, Financing Friction, and Corporate Investment: Evidence from Chinese Listed Family Firms

28 Pages Posted: 7 Sep 2013

See all articles by Nianhang Xu

Nianhang Xu

Renmin University of China - School of Business

Xinzhong Xu

Peking University - Guanghua School of Management

Qingbo Yuan

University of Melbourne

Date Written: September 2013

Abstract

Using a sample of Chinese family firms from 2000 to 2007, we investigate the investment behaviour of family firms and the effects of these firms’ political connectedness on their investments in a relationship‐based economy. Consistent with previous evidence that Chinese family firms have difficulty in financing, our results demonstrate that underinvestment due to problems with asymmetric information rather than overinvestment resulting from problems of free cash flow prevails in such firms. We further find that the political connectedness of family firms can help mitigate the underinvestment problem, with the mitigation effect being more pronounced in financially constrained firms.

Keywords: political connection, corporate investment, family firm, China

Suggested Citation

Xu, Nianhang and Xu, Gary Xinzhong and Yuan, Qingbo, Political Connections, Financing Friction, and Corporate Investment: Evidence from Chinese Listed Family Firms (September 2013). European Financial Management, Vol. 19, Issue 4, pp. 675-702, 2013. Available at SSRN: https://ssrn.com/abstract=2321967 or http://dx.doi.org/10.1111/j.1468-036X.2011.00591.x

Nianhang Xu (Contact Author)

Renmin University of China - School of Business ( email )

Beijing
China

Gary Xinzhong Xu

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Qingbo Yuan

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
653
PlumX Metrics