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Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms

Author

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  • Ling, Leng
  • Zhou, Xiaorong
  • Liang, Quanxi
  • Song, Pingping
  • Zeng, Haijian

Abstract

Using a sample of 103 listed real estate firms from 1998 to 2012, this paper examines the influence of firms’ political connections on external financing, corporate investment, and financial performance. The results indicate that political connections are negatively related to return on assets. Moreover, firms with stronger connections are financed with more long-term bank loans and are more likely to overinvest, which partially explains the puzzle of adverse effect of political connections on performance. Taken together, our results suggest that cultivating political connections could be a risky investment and may not always pay off.

Suggested Citation

  • Ling, Leng & Zhou, Xiaorong & Liang, Quanxi & Song, Pingping & Zeng, Haijian, 2016. "Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms," Finance Research Letters, Elsevier, vol. 18(C), pages 328-333.
    • Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:328-333
    DOI: 10.1016/j.frl.2016.05.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Political connection; Real estate; Overinvestment; Firm performance;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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