The impact of political connections on firm pollution: New evidence based on heterogeneous environmental regulation

Increasing attention has been focused on the extent to which corporate political connections influence the growing pollution due to the rapid growth in the popularity of firm pollution in developing countries.We adopt a static threshold regression model to investigate the effects of heterogeneous environmental regulation on political connections and firm pollution based on the panel data from China’s A-share listed companies from 2012 to 2019.The empirical results show a non-linear relationship between the degree of political connection of listed company executives and the level of firm pollution.And the relationship between the two roughly presents a U-shaped relationship under the action of the marketincentive environmental regulation threshold.However,it roughly presents an inverted N-shaped relationship under the action of the command-control environmental regulation threshold.Additionally,the group test results show that the existence of regional and ownership heterogeneity causes certain differences in the environmental behaviour of politically connected enterprises.These findings indicate that diverse environmental regulations are needed to promote sustainable green development and to further expand the theoretical and practical exploration of political connections on firm pollution.

The relationship between political connections and the mutual fund performance:Evidence from the US

This paper examines the effect of political connections between mutual fund managers and politicians on the fund performance.Using the publicly available data of individual political donations,we regard the mutual funds as politically connected when their managers make financial contributions to politicians.First,we show that aggregated stock holding changes of politically connected funds predict subsequent abnormal stock returns around the earnings announcement day,implying that the political connection promotes managers’stock picking abilities.Further evidence derived from the sample of entry buys and exit sells shows that politically connected funds outperform politically non-connected funds by 82 basis points annually.Second,we provide evidence that earnings forecast accuracy for the firms whose stocks are held by politically connected funds is improved significantly when time is approaching the announcement date,highlighting the importance of political channels through which information flows between firms and the market are facilitated.

Are transactional political connections more valuable to firms than relational political connections?

Political connections are an increasingly important part of firms’strategies to develop relationships with the government and poli-ticians.This study examines the impact of transactional and rela-tional political connections on firm value.The results show that transactionally connected firms are more likely to exhibit greater firm value than their relationally connected and non-connected counterparts.This study further finds evidence of a long-term value-enhancing effect of the transactional approach to political connections.A variety of robustness tests with alternative model specifications continue to show that transactional political con-nections lead to higher firm value.The findings indicate that firms with transactional political connections are provided with better networks with the political regime in power compared with those with relational political connections.These transactionally con-nected firms may enjoy preferential treatment from the govern-ment,in the form of lower taxes,and the access to government loans,subsidies,bailouts,and/or procurement contracts.

Do independent directors play a political role? Evidence from independent directors' death events

We propose that independent directors are likely to play a political role in an institutional setting featuring weak investor protection and strong government intervention. Using Chinese data for 2001–2014, we investigate whether the stock price reaction to an independent director's death is related to his or her political connection. We find a stronger negative reaction to the death announcements of politically connected than politically unconnected independent directors. The magnitude of the reaction is positively related to directors' political rank, and cannot be offset by their firms' political capital. However,we document no evidence of politically connected independent directors exhibiting superior monitoring or consulting performance. Additional analyses show that firms are more inclined to appoint a politically connected independent director as a successor if his or her predecessor also had political connections. Our study broadens scholarly understanding of independent directors' role in a non-Anglo-American setting.

Anti-corruption, marketisation and firm behaviours: evidence from firm innovation in China

China has launched an anti-corruption campaign since theEighteenth CPC National Congress, which has exerted widespreadinfluences on Chinese politics and economy. This paper examinesthe effect of the anti-corruption initiative on firm behaviours fromthe perspective of research and development (R&D) investments. Itshows that pursuing political connections and improving innovation are two mutually exclusive alternatives for firm growth inChina. The anti-corruption campaign raises the cost of seeking forpolitical bond and strengthens the incentive for firm innovation.After anti-corruption policies and regulations were issued, R&Dexpenditure in politically connected firms increases significantly;the anti-corruption initiative has positive effects on firm innovation.Further research shows that the effects vary with different types offirms. For state-owned enterprises (SOEs), the anti-corruptioninitiative only increases the R&D investments of firms with seniorexecutives who used to serve in the government;while for nonstate-owned enterprises (non-SOEs), this campaign has all-aroundpositive effects on their R&D investments. In the meantime, a heterogeneity at the provincial level is observed: R&D investments offirms with political connections increase more significantly in provinces with more intense anti-corruption efforts. Finally, marketisation also has a role to play. For regions with a more developedmarket economy, anti-corruption increases the innovation of firmswith political connections;whereas in regions with a less developed market economy, this effect is insignificant. This paper provides evidence for the opinion that anti-corruption is favourable toeconomic growth in China. To solve the endogeneity problem, ituses data obtained from the anti-corruption policy experimentsince the Eighteenth CPC National Congress and the difference-indifferences (DID) method to further test the hypotheses.

Monetary policy,government control and capital investment:Evidence from China

This study examines how the relationships between local governments and local enterprises moderate the effect of targeted monetary policies through different action-propagating mechanisms. First, we investigate the impact of monetary policies on enterprise investment in areas with different institutional environments. Second, we investigate the impact of monetary policies on stateowned enterprises(SOEs) with different property rights structures. Third, we examine how political connections can influence the action-propagating mechanism of monetary policies. We conclude that in China monetary policies have different effects on SOEs and on private enterprises with or without political connections. Specifically, local government interventions can significantly weaken and distort the effects of monetary policies, such that the intended reduction in investment is noticeably alleviated for SOEs and private enterprises with close links to local governments.

Resignation of officials as independent directors and firm performance

In 2013,the Chinese government implemented Rule No.18,which suspended the directorships of incumbent government officials and precluded those who retired within the past three years from serving as independent directors for listed firms.The surprise implementation of Rule No.18 triggered a wave of resignations among official independent directors(OIDs).The event provided a unique opportunity to examine the impacts of the political connections of board members on firm performance.We applied a difference-in-difference technique to empirically investigate the effect of OID resignations on firm performance from the perspectives of resource dependence theory and social capital theory.The results indicate that the resignation of OIDs had a significantly negative effect on firm performance,as measured by Tobin's 0 and firm leverage.This also confirmed the importance of independent directors'political connection on firm performance,as discovered in prior research.However,this influence varied across OIDs'heterogeneity,external environment and firm ownership.The results indicate that political connections may not be necessary channels for firms to achieve success.

The Three Links policy and stock returns

This study examines whether the Three Links(3L)policy affected stock returns before,during and after the 2008 Taiwan leadership election.The evidence shows that companies in the industries benefitting from(being damaged by)the 3L policy earned posi-tive(negative)cumulative abnormal returns.Although the polit-ical party connection/affiliation seems to have had an impact as well,it was not persistent.When both factors–the policy effect and the political connection effect–are considered together,we find that the policy effect persisted during the election,while the political connection effect did not.It is obvious that the policy effect is a powerful factor explaining changes of stock returns during the 2008 leadership election in China’s Taiwan.