Abstract
This research examines the effects of executive political connections on corporate performance by comparing firms with mergers and acquisitions (M&As) and firms without M&A activities in the energy sector using China Securities Regulatory Commission industry data from 2008 to 2018. We integrate two theoretical approaches, resource dependence and the agency view into one framework, and find that executives’ political connections have a positive effect on corporate performance when there are no M&A activities, which is consistent with the resource dependence theory; however, well-connected executives harm firm performance through M&A activities. Our main results still hold after considering endogeneity issues, substituting relevant variables, comparing the effect of the global financial crisis, and controlling for market structure. Our study provides significant insight into the energy sector, which can help practitioners and policymakers who want to make advancements in firms’ competitiveness through better implementation of policies related to M&A.
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Notes
Rank 3 = Chief at the state, provincial, ministerial, country, and bureau levels and a head of the Central Committee of the Communist Party of China, the State Council of the People’s Republic of China, National Congress of the Communist Party of China. Rank 2 = Deputies at the state, provincial, ministerial, country, and bureau levels and a member of the Central Committee of the Communist Party of China, the State Council of the People’s Republic of China, National Congress of the Communist Party of China and other government institutions (including departments directly under the CPC Central Committee). Rank 1 = Deputies at the township level, senior consultants, principal staff member, senior staff member, and a member of the Local People’s Governments at different levels, government institutions (including departments directly under the CPC Central Committee, institutions directly under the State Council, and local institutions), and the Local Committee of the Communist Party of China. Rank = 0 denotes no political background.
We also calculate the Pearson correlation coefficients of our variables used herein. The correlation between each pair of our explanatory variables is less than 0.5. Therefore, we are able to say that there are no multicollinearity issues in our analysis. To save space, we do not report this result.
For brevity, we do not present the results of random effects 2SLS and the lag period test in our paper, but they are available upon request.
HHI = sum[(Xi/X)2], where Xi is the book value of the owners’ equity of a firm, and X is the total book value of the owners’ equity of the firm industry. According to Feng and Johansson (2019), we can also define this indicator as market competition.
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Acknowledgements
We thank the editor and anonymous referees for their helpful comments and suggestions. Shuangyan Li is grateful to the National Social Science Foundation of China (Grant No.17BJY019). All remaining errors are our own.
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Li, S., Shahzadi, A., Zheng, M. et al. The impacts of executives’ political connections on interactions between firm’s mergers, acquisitions, and performance. Econ Change Restruct 55, 653–679 (2022). https://doi.org/10.1007/s10644-021-09327-7
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DOI: https://doi.org/10.1007/s10644-021-09327-7
Keywords
- Political connection-ranking index
- M&A activities
- Firm performance
- Energy sector
- China
- Firms’ competitiveness