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Anticorruption, political connections, and corporate cash policy: Evidence from politician downfalls in China

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  • Ren, Haohan
  • Zhao, Xiaofeng

Abstract

We examine how firms change their cash policies in response to the downfall of corrupt politicians in China. We find that firms connected to their local government increase cash holdings when high-profile politician downfalls occur in the government. Consistent with the precautionary saving argument, the effect is stronger for firms that have greater investment opportunities or face greater financial constraints. Compared to unaffected firms, affected firms save more cash out of cash flows and have a higher marginal value of cash holdings. Overall, we show that the collapse of firms' political connections has significant impacts on those firms' financial policies.

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  • Ren, Haohan & Zhao, Xiaofeng, 2020. "Anticorruption, political connections, and corporate cash policy: Evidence from politician downfalls in China," Emerging Markets Review, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:ememar:v:45:y:2020:i:c:s1566014120300054
    DOI: 10.1016/j.ememar.2020.100745
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    2. Herdhayinta, Heyvon & Lau, James & Shen, Carl Hsin-han, 2023. "Cash holdings of minority family businesses in Indonesia," Emerging Markets Review, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Anticorruption; Politician downfalls; Political connections; Cash policy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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