Rent-seeking incentives, corporate political connections, and the control structure of private firms: Chinese evidence

By Charles J. P. Chen, Zengquan Li, X. Su, Zheng Sun. 2011

551 citations recorded by the source corpus.

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.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/39d9cf4e41d7690118b7e0689f2cdd6771a89e41

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Gary Gang Tian
2. Tianpei Luo
3. Meijun Qian
4. Xiaping Cao
5. Jinsong Tan
6. Xiaofei Pan
7. Liming Zhao
8. Qigui Liu

In Strategy and Management

1. Tianpei Luo
2. Meijun Qian
3. Xiaping Cao
4. Jinsong Tan
5. Xiaofei Pan
6. Liming Zhao
7. Qigui Liu
8. Khondkar E. Karim

Citations in the corpus

• Disproportional Ownership Structure and Pay-Performance Relationship: Evidence from China's Listed Firms (2011, background): “This excess control rights gives controlling shareholders an incentive to expropriate the wealth of other investors and pursue their own interests, which are 3 often diametrically opposed to those of minority shareholders (Chen et al., 2011).”
• In the name of charity: Political connections and strategic corporate social responsibility in a transition economy (2015, background): “Jian and Wong (2010) and Chen et al. (2008) show that government props up connected firms through related party transactions and”
• Family control and corporate cash holdings: Evidence from China (2015, background): “Political connections are widely documented to have an important impact on the financial policy of publicly listed firms, especially in emerging markets such as China with low quality government and large government intervention (Chen et al., 2011).”
• Family Firm Research – A Review (2014, unknown): “Chen et al. (2011a) find that the effects of audit quality on earnings management and the cost of equity capital are more pronounced for non-SOEs (primarily family firms) than for SOEs.”
• Do Political Connections Buffer Firms from or Bind Firms to the Government? A Study of Corporate Charitable Donations of Chinese Firms (2016, unknown): “In emerging markets, such a buffering effect is seen as an effective mechanism to protect firms from government rent-seeking behavior (Chen et al. 2011, Dieleman and Boddewyn 2012).”