Analyses & Alternatives 2023 KCI Impact Factor : 1.46
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pISSN : 2508-822X / eISSN : 2508-8238
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The Effect of CEOʼs Political Connection on Firm Performance: The Mediating Effect of Government Subsidies
- Analyses & Alternatives
- Abbr : A&A
- 2021, 5(2), pp.39~76
- DOI : 10.22931/aanda.2021.5.2.002
- Publisher : Korea Consensus Institute
- Research Area : Social Science > Social Science in general
- Received : August 9, 2021
- Accepted : September 20, 2021
- Published : September 30, 2021
1서강대학교
Accredited
ABSTRACT
This article examines the effect of CEO’s political connections on firm performance in Chinese private firms. Following the upper echelon theory and human capital theory, CEO’s personal characteristics affect the strategic decision-making of the firm, and it is also firm-specific advantages that work as the human capital for the sustainable growth of the firm. In this regard, this article tries to empirically confirm whether CEO’s political connections have positive effects on firm performance as the firm’s human capital by dividing the Chinese local governments, which is a direct subject of political connections hierarchically. In addition, this research examines the mediating effects of government subsidies between political connections and firm performance.
To verify these questions, we use a sample of 9,849 observations of 1,451 private firms listed on the Shanghai and Shenzhen stock exchanges from 2008 to 2016, the results show that the CEO’s political connections are positively related to firm performance. Moreover, we find that only political connections with the provincial local government had a positive effect on firm performance. It indicates that values and influences of human capital held by CEOs only affect when they are related to the highest local government. Finally, when CEOs have political connections with city-level, it shows a complete mediating effect. It provides empirical evidence to find that CEO’s political connections affect firm performance as the result of non-market strategic of firms.
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