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Red Capitalists: Political Connections and Firm Performance in China
Author(s) -
Du Jun,
Girma Sourafel
Publication year - 2010
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.2010.00486.x
Subject(s) - politics , china , productivity , resource (disambiguation) , state (computer science) , economics , capital (architecture) , business , market economy , industrial organization , economic system , macroeconomics , political science , law , history , computer network , archaeology , algorithm , computer science
SUMMARY 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.