High-Corruption Environments, Corporate Political Activity, and Financing Constraints in China

Abstract

We examine the different effects of corporate political activity on financing constraints for state-owned and private enterprises. We find that corporate political activity can help private enterprises overcome ownership discrimination in the credit market, and the positive effect is conditional on levels of corruption in the external environment. Our analysis on the China Investment Climate Survey (2005) shows that corporate political activity only mitigates financing constraints in the private sector. Furthermore, the value corporate political activity on easing financing constraints is more pronounced for the private firms located in the region with higher corruption.

Keywords: Corporate Political Activity; Financing Constraints; Corruption Environments; Ownership Discrimination; China

JEL Classification: D72, D28