Red capitalists: political connections and firm performance in China

Jun Du, Sourafel Girma

Research output: Contribution to journalArticle

Abstract

Using a unique firm level data, this paper analyses the role of political connections in the post-entry performance of private start-up companies in China. It documents robust evidence that political affiliation enhances firms' survival and growth prospects. But interestingly politically neutral start-ups enjoy faster productivity improvements conditional on survival. In addition, the benefits of political connections are largely confined to firms associated with local or top level governments, and they are more pronounced in capital-intensive industries. We conclude that the close association between the state and a segment of the business community is leading to sub-optimal resource allocation in the economy by interfering with the process of market selection.
Original languageEnglish
Pages (from-to)530-545
Number of pages16
JournalKyklos
Volume63
Issue number4
DOIs
Publication statusPublished - Nov 2010

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