Bank Political Connections and Performance in China

45 Pages Posted: 31 Dec 2017 Last revised: 18 Jan 2018

See all articles by Chi-Hsiou Daniel Hung

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School

Yuxiang Jiang

GalaxyAsset management; East China University of Science and Technology (ECUST)

Hong Liu

Loughborough University - School of Business and Economics

Hong Tu

School of Finance,Nankai University

Senyu Wang

University of Essex - Essex Business School

Date Written: April 17, 2017

Abstract

We examine the effects of bank’s political connection on bank performance and risk in China. We use hand-collected information on CEOs’ professional background to identify their political affiliations, and find that banks whose CEOs have former government experiences have higher return on assets, lower default risk, and lower credit risk. Additionally, politically connected banks have disproportionally higher performance when the CEOs previous worked in the same city where the current bank’s headquarter locates, had past banking experiences, spend more on entertainment and travel costs, and have higher previous administrative rankings (e.g., at the provincial or state level). These results suggest that politically connected banks have better access to lending to politically connected firms, which are high yield assets and more likely to be bailed out when in distress. Our results offer a mechanism of political rent seeking, consistent with the institutional environment of China’s banking and political system.

Suggested Citation

Hung, Chi-Hsiou Daniel and Jiang, Yuxiang and Liu, Hong and Tu, Hong and Wang, Senyu, Bank Political Connections and Performance in China (April 17, 2017). Available at SSRN: https://ssrn.com/abstract=3057314 or http://dx.doi.org/10.2139/ssrn.3057314

Chi-Hsiou Daniel Hung (Contact Author)

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University of Glasgow
Glasgow, Scotland G12 8QQ
United Kingdom

Yuxiang Jiang

GalaxyAsset management ( email )

shanghai
century avenue
shanghai, shanghai
China

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

Hong Liu

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Hong Tu

School of Finance,Nankai University ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
China

Senyu Wang

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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