Do Politically Connected Subsidy-Receiving Firms Disclose Less Subsidy Information?

53 Pages Posted: 3 Apr 2019 Last revised: 18 Jan 2021

See all articles by Ningzhong Li

Ningzhong Li

University of Texas at Dallas

Youchao Tan

Southwestern University of Finance and Economics (SWUFE)

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Date Written: Jan 15, 2021

Abstract

This paper examines the association between firms’ political connections and their voluntary disclosure of information related to government subsidies, using a sample of Chinese non-state-owned enterprises. We find that politically connected subsidy-receiving firms disclose less information about their subsidies (source and policy basis) in their annual reports than do unconnected firms. This association is mainly driven by connected firms whose subsidies are difficult to justify, is stronger for firms registered in more corrupt provinces and for firms with higher media attention, and became weaker following the anti-corruption campaign starting in China in late 2012. In addition, connected firms disclosing more subsidy information receive fewer future subsidies than do other connected firms. These findings suggest that politically connected subsidy recipients tend to withhold subsidy information to reduce the costs that accompany public scrutiny of subsidies granted through relationships.

Keywords: Government subsidies; Political connection; Corporate disclosure; Corruption

JEL Classification: H2; M4; P16

Suggested Citation

Li, Ningzhong and Tan, Youchao and Zeng, Cheng, Do Politically Connected Subsidy-Receiving Firms Disclose Less Subsidy Information? (Jan 15, 2021). Available at SSRN: https://ssrn.com/abstract=3352094 or http://dx.doi.org/10.2139/ssrn.3352094

Ningzhong Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Youchao Tan

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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