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The Stock Market Implication Of Political Connections: Evidence From Firms' Dividend Policy, Jerry Cao, Sheng Huang, Qigui Liu, Gary G. Tian

Faculty of Business - Papers (Archive)

Political connections are valuable for shareholders of privately-run firms especially in countries with weak legal institutions. We study the effect of a firm's political connections in the public equity market by focusing on its impact on the firms' dividend policy. Prior studies suggest that dividends signal the commitment for proper treatment of minority shareholders and thus high growth firms pay dividends to establish such a reputation for better access to equity market in the future. Using a sample of privately-owned Chinese firms, we find that politically connected firms are less likely to pay dividends and pay less if they pay. …