Political Connections and Government Subsidies: Evidence from Financially Distressed Firms in China |
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Authors: | Qizhi Tao Yicheng Sun Yingjun Zhu |
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Institution: | 1. School of Finance, Southwestern University of Finance and Economics, Chengdu, China;2. Shanghai Lixin University of Accounting and Finance, Shanghai, China |
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Abstract: | Previous studies report mixed evidence regarding the effect of political connections on firm value. We seek new evidence in China, an important emerging market with a hallmark of a relationship-based economy. Using financially distressed firms (special treatment or ST firms) as a unique sample, we identify a direct channel through which political connections enhance firm value by showing that politically connected firms receive more government subsidies. Moreover, such effect becomes stronger for state-owned enterprises (SOEs), for firms with a better chance of survival, and after the government implemented a new policy to more strictly enforce the delisting in 2012. |
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Keywords: | delisting financial distress government subsidies political connections |
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