Abstract
We examine the value of political connections in opaque firms under the setting of China's File 18. The Chinese central government has enforced File 18 since 2013 and exogenously constrained firms' political connections through independent boards. We find that the value of firms with politically-connected independent directors has significantly declined after the enforcement of File 18 only for firms with relatively higher degrees of information asymmetry. The value decline is greater among opaque firms with greater external financial dependence or lower credit worthiness, and is manifested in the drop of external financing, investments and sales growth among opaque firms. Our findings are consistent with that political connections are more conductive for firms that are more opaque by providing external financing support.
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