The (In)Visibility of Undisclosed Political Connections

62 Pages Posted: 9 May 2019 Last revised: 4 Oct 2023

See all articles by Han Wu

Han Wu

HEC Paris

Yi Li

Hunan University

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Qiliang Liu

Wuhan University - School of Economics and Management

Hong Cai

affiliation not provided to SSRN

Date Written: September 1, 2023

Abstract

Despite a strong investor demand for firms to disclose information on political connections, mandatory disclosure requirements face considerable opposition. Motivated by the literature on firms’ learning from stock prices, we investigate whether private information acquisition can be a useful alternative to disclosure. Using a setting of corruption investigations, we find that investors, on average, are not aware that the firms they have invested in have ties to the officials under investigation, suggesting a lack of visibility of the connections. Only a small number of institutional investors acquire information on the connections and sell their shares in response to the investigations. We also show that the high costs of information acquisition and a lack of incentives for analysts to disseminate sensitive information they have obtained contribute to this lack of visibility and result in a significant delay in the price incorporation of material information. Our study contributes to the debate on mandating disclosure of political connections by emphasizing the importance of investors’ ability to privately acquire relevant information on political connections.

Keywords: Political Connections, Visibility, Corruption, China, Anti-Corruption Campaign, Information, Transparency, Institutional Investors, Retail Investors

JEL Classification: G30, G32, G34, G38, K40, M10, M41, M48, P37

Suggested Citation

Wu, Han and Li, Yi and Hope, Ole-Kristian and Liu, Qiliang and Cai, Hong, The (In)Visibility of Undisclosed Political Connections (September 1, 2023). Available at SSRN: https://ssrn.com/abstract=3363698 or http://dx.doi.org/10.2139/ssrn.3363698

Han Wu (Contact Author)

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Yi Li

Hunan University ( email )

2 Lushan South Rd
Changsha, CA Hunan 410082
China

Ole-Kristian Hope

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Qiliang Liu

Wuhan University - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

Hong Cai

affiliation not provided to SSRN

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