Political Background and Household Financial Asset Allocation in China

Abstract

ABSTRACT Political background is an important factor in determining the household economic behavior. Using 2014–2018 households panel data from the China Family Panel Studies (CFPS), we investigate the effects of political background on China’s household asset allocation behavior. We find that political background has a significant positive impact on the financial market participation. Mediation analysis indicates that political background leads to higher household wealth, better social capital, and fewer credit constraints, thus promotes households investments. Further analysis shows that the marginal impact of political background on household investment behavior is more significant in Eastern and urban areas. Our results contribute to the existing literature on the relationship between the political background and the household investment behavior, also enhancing the understanding of the household portfolio heterogeneity.