Politically Connected Enterprises: Business Strategy or Agency Problem?

37 Pages Posted: 28 Mar 2022

See all articles by Yuanyuan Song

Yuanyuan Song

Central University of Finance and Economics (CUFE) - School of Finance

Xu Wei

Central University of Finance and Economics (CUFE)

Yi Zhou

Peking University

Ben Jacobsen

Tilburg University - TIAS School for Business and Society; Massey University

Date Written: January 30, 2022

Abstract

This paper investigates what motivates private entrepreneurs to chase political connections (measured as entrepreneurs’ membership of the People’s Congress (PC) or the Chinese People’s Political Consultative Conference (CPPCC)). Whilst achieved political connections contribute little to an enterprise’s profitability, they significantly correlate with an entrepreneur’s self-rated statuses. Moreover, entrepreneurs of enterprises with weaker corporate governance (lower share of the entrepreneur in the enterprise) tend to make larger donations to achieve political connections. Our findings suggest that obtaining political connections may indicate an agency problem rather than a business investment.

Keywords: political connections; agency problem; Corporate social responsibilities; Corporate Governance

Suggested Citation

Song, Yuanyuan and Wei, Xu and Zhou, Yi and Jacobsen, Ben, Politically Connected Enterprises: Business Strategy or Agency Problem? (January 30, 2022). Available at SSRN: https://ssrn.com/abstract=4021378 or http://dx.doi.org/10.2139/ssrn.4021378

Yuanyuan Song (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Xu Wei

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Yi Zhou

Peking University ( email )

5 Yiheyuan Road
Haidian District
Beijing, 100871
China

HOME PAGE: http://www.yizhoudemog.net

Ben Jacobsen

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Massey University ( email )

Auckland
New Zealand

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