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Who benefits from political connections? Minority investors or controlling shareholders

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  • Lihong Wang
  • Philip T. Lin

Abstract

Using a sample of Chinese privately controlled firms listed on the Shanghai Stock Exchange during 2003–2012, this paper empirically examines the relation between politically connected independent directors and firm value creation and value expropriation. Our empirical results show that having politicians as independent directors helps listed privately controlled firms to increase subsidies received from the government as well as obtain an ease of access to long-term bank financing. In contrast, we discern that a large fraction of politically connected independent directors increases the magnitude of related-party transactions between the listed firms and their controlling parties, suggesting wealth expropriating from minority shareholders. Finally, when exploring the net effects of political connections, the presence of politically connected independent directors promotes firm profitability and adds residual value to Chinese listed privately controlled firms.

Suggested Citation

  • Lihong Wang & Philip T. Lin, 2017. "Who benefits from political connections? Minority investors or controlling shareholders," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(1-2), pages 1-22, April.
    • Handle: RePEc:taf:raaexx:v:24:y:2017:i:1-2:p:1-22
    DOI: 10.1080/16081625.2016.1151364
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    References listed on IDEAS

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    Cited by:

    1. Abdullah & Muhammad Arsalan Hashmi & Rayenda Khresna Brahmana & Humayun Fareeduddin, 2024. "Do board characteristics moderate the relationship between political connections and cash holdings? insight from Asian countries," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(4), pages 624-641, December.
    2. Ting Ren & Youzhi Xiao & Xinguo Yu & Hongyan Yang & Jianmei Ge, 2020. "Resignation of officials as independent directors and firm performance," Frontiers of Business Research in China, Springer, vol. 14(1), pages 1-21, December.
    3. Lien‐Wen Liang & Tsui‐Jung Lin & Hui‐Fun Yu & Ya‐Wen Li, 2022. "The impact of political connection and board diversity on company performance: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2347-2357, September.
    4. Budi Wahyono, 2022. "The value of political connections and Sharia compliance during the COVID-19 pandemic," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 1-28, March.

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