Political Connections and Peers

59 Pages Posted: 29 Sep 2016 Last revised: 24 May 2023

See all articles by Jared R. Stanfield

Jared R. Stanfield

University of Oklahoma; Financial Research Network (FIRN)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Le Zhang

Australian National University (ANU) - College of Business and Economics

Date Written: May 22, 2023

Abstract

To understand the mechanisms through which political connections impact firm value and performance, we study how political connections affect connected firms and their peers. Following the announcement of anti-corruption investigations in China, we show that the industry peers of firms connected to investigated officials experience a decrease in value but not in performance, despite connected firms’ significant deterioration of value and performance. Interestingly, we document evidence of a transfer of reduced effective tax rates away from connected firms to firms headquartered in the same city, mitigating any negative value impacts. This evidence suggests that severing political connections can have important spillover effects on industries and cities.

Keywords: Political Connections, Peers, Valuation, Performance

JEL Classification: G30, G32, G38

Suggested Citation

Stanfield, Jared R. and Zhang, Bohui and Zhang, Le, Political Connections and Peers (May 22, 2023). Available at SSRN: https://ssrn.com/abstract=2845004 or http://dx.doi.org/10.2139/ssrn.2845004

Jared R. Stanfield (Contact Author)

University of Oklahoma ( email )

Norman, OK 73019
United States

HOME PAGE: http://jaredstanfield.com

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

Le Zhang

Australian National University (ANU) - College of Business and Economics ( email )

Canberra
Australia

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