Political connections and labor investment efficiency: Evidence from China's private firms |
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Authors: | Bole Zhou Jing Ge Pengfei Ge |
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Institution: | 1. School of Economics and Management, Northwest University, Xi'an, China;2. School of Economics and Management, China University of Geosciences (Beijing), Beijing, China |
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Abstract: | This study investigates whether political connections affect labor investment efficiency. We test this question in the context of China's private firms, where we find that political connections are negatively associated with labor investment efficiency. We also explore the channels through which political connections reduce labor investment efficiency and provide evidence that political connections aggravate both agency problems and information asymmetry. Further tests show that the influence of political connections is more pronounced for firms with overinvestment problems or high-level political connections, and for firms from regions facing severe unemployment or loose anticorruption. Overall, our results are consistent with the “grabbing hand” argument that politicians destroy firm operational efficiency. |
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Keywords: | political connections labor investment efficiency China private firms |
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