Rent-Seeking Incentives, Corporate Political Connections, and the Control Structure of Private Firms: Chinese Evidence

Jieping Chen (First Author), Xijia Su (Participant Author), Zengquan Li (Participant Author), Zheng Su (Participant Author)

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216 Citations (Web of Science)

Abstract

We examine how the rent-seeking incentives of local government motivate private firms1 listed in China to establish political connections, and whether such connections lead to more concentrated corporate control structures. Our results show that such firms are more likely to establish political connections in regions in which the local economy is less market-oriented or in which the government has more discretion in allocating economic resources. This is consistent with the notion that the presence of incentives for government officials to engage in rent seeking motivates private firms to look for alternative safeguards through political connections. We also find that the controlling owners of politically connected firms tend to concentrate their shareholdings and dominate the board of directors by occupying the position of either chairman or CEO, which supports the conjecture that a concentrated control structure facilitates rent seeking through political connections and allows the controlling owner to retain all of the benefits arising from connections with politicians.
Original languageEnglish
Pages (from-to)229-243
JournalJournal of Corporate Finance
Volume17
Issue number2
DOIs
Publication statusPublished - 2011

Corresponding author email

ccharles@ceibs.edu

Keywords

  • Emerging markets
  • Political connections
  • Rent-seeking incentives

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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