Publication Type

Working Paper

Version

publishedVersion

Publication Date

6-2023

Abstract

Historically, economic activities have been organized around certain ideologies. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change—China from Mao to Deng around the 1978 economic reform—in a regression discontinuity framework. We find that the age discontinuity of politicians around 18 years old in 1978, who had already joined the Chinese Communist Party (CCP) or joined soon thereafter and later became municipal paramount leaders, has had a lasting effect on contemporary firm- and city-level policies. In particular, firms in cities with mayors that joined the CCP under the ideological regime of Mao have made more social contributions, lowered within-firm pay inequality, and engaged in less internationalization than those under Deng’s regime. These effects are stronger in firms with political connections, in non-state-owned enterprises, and in regions that are more market-oriented and not “revolutionary bases.” We find further evidence that ideology-induced corporate policy biases have some impact on firm performance and valuation.

Keywords

Political ideology, political connection, corporate policy, China

Discipline

Asian Studies | Corporate Finance | Finance and Financial Management

Research Areas

Finance

First Page

1

Last Page

78

Publisher

SSRN

External URL

https://ssrn.com/abstract=3494916

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