Volume 19, Number 1, June 2024
| Insights of the political connection after the anti-corruption campaign |
Abstract
This study examines the effects of the political connecitons on corporate performance, and whether the anti-corruption campaign moderates the relation between political connection and corporate performance. Using a sample of firms listed on the Shanghai and Shenzhen Stock Exchanges in China over the period of 2008 to 2018, we find that political connections have a positive effect on corporate performance and the anti-corruption campaign could improve corporate performances. Moreover, the anti-corruption campaign moderates the relation between political connection and corporate performance. After the campaign, the advantages of political connections are mitigated, and firms rely more on their operations. There is a negative effect of political connections on corporate performance after the campaign, especially in firms with low level of information asymmetry. As far as ownership structure is concerned, this study observes that political connections decrease performances in state-owned enterprises and domestic legal persons under the anti-corruption clauses. Moreover, these negative moderating effects only work in firms with low level of information asymmetry. Our results are not biased by endogeneity problems after a battery of robustness checks. The findings of this paper contribute to corporate governance and management practices in emerging markets.
Keywords: Anti-corruption Campaigns, Political Connection, Corporate Performance, Ownership Structure, Information Asymmetry
JEL Classification: G32, G38