Scandinavian Working Papers in Economics

Stockholm School of Economics Asia Working Paper Series,
Stockholm School of Economics, Stockholm China Economic Research Institute

No 2013-28: Mixing Business with Politics: Political Participation by Entrepreneurs in China

Xunan Feng , Anders C. Johansson () and Tianyu Zhang
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Xunan Feng: Shanghai University
Anders C. Johansson: Stockholm China Economic Research Institute
Tianyu Zhang: Chinese University of Hong Kong

Abstract: We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.

Keywords: Political participation; Entrepreneurs; Corporate governance; Rent seeking; Debt financing; Tax burden; Government subsidies; Mergers and acquisitions; Regulated industries; China

JEL-codes: G30; G32; G34; H20; P26

63 pages, December 17, 2013

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