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An International Meeting of American Accounting
Association
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Political Connections: Underlying Incentives and Impact on Organizational Structure: Empirical Evidence from Listed Family Firms in China |
Xijia Su
City University of Hong Kong
Charles J.P. Chen
City University of Hong Kong
Zengquan Li
Shanghai University of Finance & Economics
Abstract: In this study we examine the incentives for family firms in China to establish political connections, and the impact of political connections on the organizational structure measured by shareholding structure and composition of board. We hypothesize and find that family firms are more likely to establish political connections when the local markets are less developed and the governments are more powerful in controlling resources. In particular, firms are more likely to build political connections when local governments suffer from severe budgetary deficits, when they tend to rely on discretionary charges and penalties for raising revenues, and when they have more leeway in granting business subsidies. We also find that controlling shareholders of family firms with political connections tend to concentrate their shareholding and dominate the board of directors so that they can make deals with government officials in secrecy and enjoy the benefits exclusively among themselves.