For the Common Good? The Effects of Private Entrepreneurs’ Political Participation in China

We study the benefits of private entrepreneurs entering into politics in China. Using original hand-collected data on political participation of entrepreneurs that control listed firms, we document evidence of rent seeking through their political networks and several potential channels through which rent seeking is realized. It is shown that political participation results in increased stock performance and operating performance, consistent with the rent-seeking argument. As rent-seeking channels, firms controlled by politically active private entrepreneurs are able to access debt financing better, lessen their tax burden, and engage in favorable M&A activities, at least partly explained by better access to regulated industries. This study thus sheds light on the benefits of political participation for private entrepreneurs in China and, more importantly, document several channels used to exploit political networks built up through active participation in politics. JEL Classification: G30; G32; G34; H20; P26