Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms

Authors

Leng Ling, Georgia College & State University
Xiaorong Zhou, Southwestern University of Finance and Economics
Quanxi Liang, Guangxi University
Pingping Song, Georgia Gwinnett College
Haijian Zeng, Guangxi University

Document Type

Article

Publication Date

8-1-2016

Publication Title

Finance Research Letters

Abstract

Using a sample of 103 listed real estate firms from 1998 to 2012, this paper examines the influence of firms’ political connections on external financing, corporate investment, and financial performance. The results indicate that political connections are negatively related to return on assets. Moreover, firms with stronger connections are financed with more long-term bank loans and are more likely to overinvest, which partially explains the puzzle of adverse effect of political connections on performance. Taken together, our results suggest that cultivating political connections could be a risky investment and may not always pay off.

Volume Number

18

First Page

328

Comments

© 2016 Elsevier Inc.

Last Page

333

Recommended Citation

Ling, L., Zhou, X., Liang, Q, Song, P. & Zeng, H. (2016). Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms. Finance Research Letters, 18: 328-333.