The impact of political connections on the efficiency of China's renewable energy firms

Abstract

This study investigates the impact of political connections on firm efficiency as well as its mechanisms in Chinese renewable energy firms. The empirical results reveal a direct negative association between political connections and firm efficiency and an indirect correlation through political resources. The results indicate that the higher the level of political connections, the stronger the relationship between political connections and firm efficiency. Our findings also indicate that the impact of political connections is different between state-owned and non-state-owned firms. For state-owned firms, political connections are negatively correlated with firm efficiency and government subsidies are not beneficial for state-owned firms in promoting productivity. As for non-state-owned firms, there is a ‘double-edged sword’ effect of political connections on firm efficiency. On the one hand, political connections are associated with lower firm efficiency, but on the other hand, political connections can alleviate the adverse effects of financing constraints on non-state-owned firms.