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Political Connection and Regulatory Scrutiny through Comment Letters: Evidence from China

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  • Yunsen Chen
  • Yilu Deng
  • Yufang Jin
  • Hetong Lou
  • Xin Zhang

Abstract

Heese, Khan, and Ramanna (2017, hereafter, HKR) find that political connection (PC) positively predicts the receipt of comment letter (CL) reviews in the United States. This paper investigates whether this phenomenon exists in China and, if so, the specific channel by which it occurs. We find that Chinese publicly listed firms with PC are more likely to receive CLs from Chinese regulators, and this result is particularly strong for firms that have hired former officials from the lower tier of the political hierarchy. Additionally, the positive association between PC and the chance of receiving CLs is more pronounced in nonstate‐owned enterprises. Overall, we show that HKR's results hold for both the United States and China, and we add new evidence that state ownership and the level of connection moderate this relationship.

Suggested Citation

  • Yunsen Chen & Yilu Deng & Yufang Jin & Hetong Lou & Xin Zhang, 2020. "Political Connection and Regulatory Scrutiny through Comment Letters: Evidence from China," International Review of Finance, International Review of Finance Ltd., vol. 20(3), pages 789-798, September.
    • Handle: RePEc:bla:irvfin:v:20:y:2020:i:3:p:789-798
    DOI: 10.1111/irfi.12230
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    References listed on IDEAS

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    1. Li, Ziyang & Han, Ning & Zeng, Qing & Li, Yu, 2022. "Executive team heterogeneity, equity pledges, and stock Price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 84(C).
    2. Longhao Xu & Zhijian James Huang & Fenghua Wen, 2022. "Comment letters and stock price synchronicity: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1387-1421, November.

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