The value of political ties for firms experiencing enforcement actions: Evidence from China |
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Authors: | Xin Yu Ying Zheng |
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Institution: | 1. Business School, The University of Queensland, St Lucia QLD, 4072, Australia;2. Business School, Sun Yat-sen University, China |
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Abstract: | We study the value of political ties for firms experiencing enforcement actions. We find that stronger corporate political ties alleviate the negative market shocks caused by enforcement action announcements of listed firms in China, and the relationship between political ties and market reaction is more pronounced for enforcement actions that signal loss of market credibility than for enforcement actions that signal loss of political ties and in regions with greater government intervention. We further find that firms with stronger political ties experience larger increases in long-term debt after enforcement actions, suggesting that it is the investors' expectation of government support to connected firms that mitigates the negative market reaction. |
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Keywords: | Political connections Enforcement actions Event study Emerging markets G32 G38 M41 |
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