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Political connections and product market competition: Effects and channels

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  • Lin, Yan
  • Liu, Yijia
  • Chan, Kam C.

Abstract

We examine the effect of political connections (PCs) on firms' product market competition and the corresponding channels of this effect in China. Our findings suggest that PCs exert a negative impact on a firm's product market competition. Specifically, compared to non-PC firms, PC firms enjoy more competitive advantages. Moreover, we distinguish PCs stemming from managers and those stemming from directors. When compared to manager-only PC firms, director-only PC firms have stronger adverse effects on product market competition, indicating the effect of PCs is heterogeneous. Additional analysis shows that the effect of director-only PC firms on product market competition is more salient when directors have same industry and related-industry experience. Finally, we find corporate operating risks, trade credit, and financial constraints are important channels through which PCs influence product market competition.

Suggested Citation

  • Lin, Yan & Liu, Yijia & Chan, Kam C., 2021. "Political connections and product market competition: Effects and channels," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 801-816.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:801-816
    DOI: 10.1016/j.iref.2021.07.009
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    More about this item

    Keywords

    Political connections; Product market competition; Occupational positions; Types of directorship; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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