Political Connection and the Walking Dead: Evidence from China's Privately Owned Firms

34 Pages Posted: 3 Jan 2018 Last revised: 30 Mar 2019

See all articles by Qing He

Qing He

Renmin University of China

Xiaoyang Li

The Chinese University of Hong Kong (CUHK)

Wenyu Zhu

Renmin University of China - School of Finance

Date Written: August 1, 2018

Abstract

Using a sample of privately owned listed firms in China, we document that firms’ political connections have a positive effect on their likelihood of becoming insolvent and inefficient (which we call zombies or zombie firms). The results are more pronounced for firms that are located in regions with extensive government intervention or weak institutional environment. In addition, for firms without political connections, the presence of zombie firms has larger negative spillover effects on the investment and productivity of healthy firms compared with zombie firms in the same industry. Curiously, such differential negative spillover effects are not observed for firms with political connections.

Keywords: zombie firm; political connection; resource misallocation

JEL Classification: G21; G34; L33; P34

Suggested Citation

He, Qing and Li, Xiaoyang and Zhu, Wenyu, Political Connection and the Walking Dead: Evidence from China's Privately Owned Firms (August 1, 2018). Available at SSRN: https://ssrn.com/abstract=3095152 or http://dx.doi.org/10.2139/ssrn.3095152

Qing He

Renmin University of China ( email )

Room 705
Mingde main building
Beijing, Beijing 100872
China

Xiaoyang Li

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Wenyu Zhu (Contact Author)

Renmin University of China - School of Finance ( email )

59 Zhongguancun Street
Beijing, 100872
China

Register to save articles to
your library

Register

Paper statistics

Downloads
123
rank
224,520
Abstract Views
556
PlumX Metrics