THESIS
2015
viii, 73 pages : illustrations ; 30 cm
Abstract
This dissertation contains two related empirical essays on political connections in China,
using evidence on the land market as a case study. The first essay examines whether the
politically connected firms obtain economic rents based on their connections, and their
consequences both at the firm level and for the land market as a whole, whereas the second
essay examines whether these bureaucrats-directors shared part of the rents.
In the first essay, I employ a data set that contains land transactions conducted between
the publicly listed firms and local governments in China for the period 2000-2012, and find
that the politically connected firms had been able to obtain economic rents of an average
magnitude of 16% from the local governments with which they have developed ties....[
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This dissertation contains two related empirical essays on political connections in China,
using evidence on the land market as a case study. The first essay examines whether the
politically connected firms obtain economic rents based on their connections, and their
consequences both at the firm level and for the land market as a whole, whereas the second
essay examines whether these bureaucrats-directors shared part of the rents.
In the first essay, I employ a data set that contains land transactions conducted between
the publicly listed firms and local governments in China for the period 2000-2012, and find
that the politically connected firms had been able to obtain economic rents of an average
magnitude of 16% from the local governments with which they have developed ties. By
drawing a distinction between general political ties, which we define as firms having hired
former senior officials from just anywhere in the country, and local connections, referred to
those firms having hired the former officials from precisely the same municipalities in which
they held positions and bought land, we rule out the possibility that managerial ability or
local knowledge is the channel through which the discount associated with political
connections emanate. Furthermore, by showing that the rents obtained from political
connections are larger for: 1) land designated for real estate development, 2) when land was
sold using a less transparent method, and 3) in regions where the size of the government
bureaucracy is larger, we prove that the channel by which economic rents are created is due
to rents seeking. Conversely (but consistently), the size of rents diminish noticeably in times
of anti-corruption campaigns. Last but not least, while firms that paid a lower price for land
has a higher market value, the discount has no effect on either the firm’s revenue or
productivity. Overall, we find that evidence of political connections in China’s land market is
associated with significantly greater government intervention in the land market.
In my second essay, I examine the question of whether the former government and/or
party officials benefited from being directors of the listed firms in which they subsequently
serve. Using a different data set, I find that, while these former bureaucrats do receive
compensations higher than their peers without prior bureaucratic experience, this premium is
actually attributed to the “connecting role” they helpfully assumed in the land transactions,
rather than based on the firm’s overall performance—metrics upon which compensations
made to their non-official directors are based. Specifically, firms with directors who are formerly bureaucrats serving in the same municipality from which they purchased land paid
an average of 17% less on land price, from which about 1%—equivalent to about 0.5 million
yuan per deal—is paid to them as bonus. The “broker” directors also profit from trading
firm’s stock before and after the land transaction. Consistent with the previous findings, this
one similarly suggests that the financial returns to the bureaucrats-directors is the result of
rents seeking.
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