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Political influence and financial flexibility: Evidence from China

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  • Gu, Xian
  • Hasan, Iftekhar
  • Zhu, Yun

Abstract

This paper investigates how political influence affects firms’ financial flexibility and speed of adjustment toward target leverage ratios. We find that at the macro level, firms in environments with high political advantages, proxied by provincial affiliations with heads of state as well as political status and party rank of provincial leaders, adjust faster. At the micro level, firms that are state-owned, have CPC members as executives, or bear low exposure to changes in political uncertainty adjust faster. When interacted, the micro-level political factors have more significant impact.

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  • Gu, Xian & Hasan, Iftekhar & Zhu, Yun, 2019. "Political influence and financial flexibility: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 142-156.
    • Handle: RePEc:eee:jbfina:v:99:y:2019:i:c:p:142-156
    DOI: 10.1016/j.jbankfin.2018.12.002
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    More about this item

    Keywords

    Political influence; Political environment; Political connection; Financial flexibility; Speed of adjustment;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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