Betting on a Princeling

Abstract

Through an event study of the two most significant political events in China in the past decade: the removals of Chen Liangyu in 2006 and Bo Xilai in 2012, I show results that are different from or unknown in existing studies of political connections. First, different from prior studies that focus on connections with members of parliament, only connections with the government mattered for firm value in authoritarian China. Second, unlike previous research that treats connections as exogenous, I examined how connections were formed due to leadership change. Third, unexplored in existing research, I identify “revolving door” as the most common mechanism that links connections and firm value. The findings shed light on our understanding of late development, state intervention and the political economy of authoritarian regimes.