Bünyamin Önal (Aalto University School of Business): Political (dis)connections and corporate investment decisions: Evidence from China
co-author: Nan Xiong (University of Surrey)
Exploiting a unique ruling in China that resulted in eviction of politicians and bureaucrats from corporate boards, we offer causal evidence on how political (dis)connections affect corporate investment behavior. We show that capital expenditures and acquisitions become more sensitive to political uncertainty for disconnected firms. Managers also pay more attention to stock market signals after the departure of politically connected board members, particularly when signals contain more information about policy. Our findings hold up to a battery of robustness checks as well as alternative explanations. Thus, we conclude that political connections facilitate investment decisions.
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