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Political connections and managerial premiums in the labor market: Evidence from China

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  • Tan, Wenhao
  • Wang, Qiong
  • Guo, Xiuyuan
  • Chen, Jiangting

Abstract

This study investigates whether and how chief financial officers' (CFOs') political backgrounds affect managerial premiums in the labor market. Previous studies have confirmed that political connections can have widespread firm-level benefits, but there has been limited focus on the influence of political connections on the labor market. Using a panel dataset from 2008 to 2020 in China, our empirical results indicate that CFOs’ political connections are positively correlated with higher compensation and the probability of voluntary turnover but negatively correlated with firm performance, particularly for connections at the central government level or those involving multiple government positions. Adopting a difference-in-differences model and an event study methodology, we determine that politically connected CFOs can bring bank credit and tax advantages to firms, thereby increasing firm value. Furthermore, such connection-led premiums are higher in less developed regions, and politically connected CFOs are more willing to relocate to such regions.

Suggested Citation

  • Tan, Wenhao & Wang, Qiong & Guo, Xiuyuan & Chen, Jiangting, 2022. "Political connections and managerial premiums in the labor market: Evidence from China," Economic Modelling, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:ecmode:v:114:y:2022:i:c:s0264999322001857
    DOI: 10.1016/j.econmod.2022.105939
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    More about this item

    Keywords

    CFO; Managerial labor market; Compensation incentive; Executive turnover;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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