Pay of political directors in China

Abstract

Independent directors of firms benefit from prior political connections acquired during the public service. Such so-called “politician directors” are found to receive excessive directorship fee. In a quasi-natural experiment, the anti-corruption campaign of “Eight-Point Policy” significantly reduces excessive directorship fee of politician directors. We rule out monitoring or advising role that might otherwise explain excessive directorship fee of politician directors. Finally, weak firms with low productivity or poor performance tend to hire politician officials mainly for accessing bank financing. The evidence highlights the dark side of politician directors and suggests resource misallocation of credit allocation due to political connections.