Government connections and the persistence of profitability: Evidence from Chinese listed firms

Li Liu, Qigui Liu*, Gary Tian, Peipei Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

We find that state owned enterprises (SOEs hereafter) have lower (higher) mean-reverting rates when profitability is better (worse) than the norm; while non-SOEs with politically connected executives have lower (higher) mean-reverting rates when profitability is extremely better (worse) than the norm. In addition, SOEs controlled by the central government have lower mean-reverting rates than those controlled by local governments. Our results are robust to a series of robustness tests and a test using alternative measures of profitability. We argue that government connections help firms maintain a relatively competitive advantage and thus have an important influence on mean-reverting patterns of profitability for Chinese firms.

Original languageEnglish
Pages (from-to)110-129
Number of pages20
JournalEmerging Markets Review
Volume36
Early online date2018
DOIs
Publication statusPublished - Sep 2018

Keywords

  • Government connections
  • Mean reverting
  • Politically connected executives
  • Profitability
  • State control

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