Volume 11, Number 2, December 2016
| The Relationship between Political Connections, Information Asymmetry and the Value of Cash Holdings—Evidence from China |
Abstract
This study explores the relationship between political connections, information asymmetry and the value of cash holdings. The sample includes Chinese listed companies for the period from 2008 to 2013. The results indicate that firms with political connections do show a higher value of cash holdings relative to firms without political connections. However, when the impact of information asymmetry is taken into consideration, agency problems between mangers and outside investors appear to be worsened by political connectedness and higher information asymmetry, which in turn hurts firm value. Taken together, these findings suggest that although the problem of an imperfect capital market can be mitigated by political connectedness, the market recognizes the weakened benefits of cash for firms with political connections accompanied by higher information asymmetry.
Keywords: Political Connections; Information Asymmetry; The Value of Cash Holdings Theory, Analytics, Integrated Reporting
JEL Classification: D72, D82