Janus-faced Effects of Political Connections on Corporate Insider Trading

Abstract

Whether political connections trigger or inhibit financial misconduct is yet to be concluded. We contend that politically connected firms do evil and good simultaneously. Based on the status attainment perspective, we propose that those firms are Janus-faced in respect of insider trading such that they commit illegal insider trading (substantial misconduct) and voluntarily report the legal insider trading (symbolic compliance) simultaneously. Contextualized in a panel dataset of Chinese private listed firms, we found strong support for Janus-faced effects. Moreover, those organizational substantial misconducts become restrained under a greater stringency of anti-corruption whilst symbolic compliance tends to be stronger given more government subsidies. Overall, the study advances the literature of financial misconduct by unveiling the Janus-faced effects of political connection. It also presents new evidence of the contextualized view of corporate governance while unveiling that government subsidies exacerbate the inclinations of symbolic compliance.