This paper examines whether and how firms influence regulatory decisions through media capture. Using the unique Chinese regulation setting, we find that higher public relations expenditure reduces a negative pre-IPO media tone and this relationship is weaker when both firms and media outlets face higher legal punishment risks. By linking the incentives for media capture to regulatory decisions, we further find that a less negative media tone is associated with a higher likelihood of IPO approval. In sum, our findings document that firms can capture media tone and, thus, obtain preferred IPO approvals from regulators, which in turn reduces resource allocation efficiency in an emerging market.

Taking advantage of corruption scandals in China, we construct a natural experiment and identify the ousting of corrupt politicians, and firms connected with them through bribery and personal relationships (event firms). We find that the investment expenditure of event firms declines significantly after the ousting of the politicians compared with that of non-event firms, especially for non-SOEs. We also find that, after the ousting of the politicians, investment efficiency improves for event SOEs, but declines for event non-SOEs, compared with their non-event counterparts. We also document that the ousting of the politicians influences firm investment decisions more after the recent anti-corruption campaign, for bribing firms and for firms in more corrupt regions. These results are robust to alternative measurements of key variables and specifications.

Using a sample of 612 listed Chinese non-SOEs from 2006 to 2009, we show that the use of collateral is higher in family-controlled firms. This effect is more pronounced when family firms have a larger control-ownership wedge, family representation in management, and are led by a descendant chairman/CEO. We further document that having multiple large shareholders, paying higher dividends, having completed the split-share structure reform and being located in provinces with more competitive credit markets can mitigate the incentive of controlling families to engage in expropriation and reduce the level of collateral required. Overall, we contend that in China, the risk of expropriation associated with family control leads to an increased credit risk and, in turn, higher collateral being required by banks.

This study investigates the effect of banks’ dual holding on bank lending and firms’ investment decisions using a sample of listed firms in China. We find that dual holding leads to easier access to bank loans, a result that is more pronounced for non-state-owned enterprises (non-SOEs) than SOEs. We also find that dual holding distorts banks’ lending decisions and harms the investment efficiency for SOEs, while resulting in optimal lending decisions and enhanced investment efficiency for non-SOEs. For non-SOEs, further analysis suggests that optimal lending decisions and efficient investment can be achieved for firms with higher ownership concentration, and firms in which the family and foreign investors are the controlling shareholders. We argue that, in emerging markets, whether a bank plays a monitoring role by directly holding the debt and equity claims of companies relies heavily on whether the potential collusion between firm executives and bank managers can be averted, which in turn is determined by the firms’ governance framework and ownership structure.

This study investigates how managerial professional connections, through executives' membership of an industry association, play a role in helping firms obtain trade credit, while political connections do not. We document that firms whose managers have professional connections receive more trade credit, especially in firms that are not controlled by the state (non-SOEs), which have limited access to formal financial resources. The business environment, for example, low social trust and high product market competition, also strengthen the positive relationship between managers' professional connections and firms' access to trade credit. We further provide evidence that directors' professional connections also bring firms more trade credit and that firms with professional connections make more use of financing component of trade credit and abnormal trade credit. Our results are robust to a series of robustness and endogeneity tests. Overall, we argue that managerial professional connections, other than political connections, help firms, especially those with limited access to formal financing, to obtain informal financing resources.

We investigate how the state's intervention in the investment decisions of Chinese local SOEs is affected by corporate control distance in the form of pyramidal layers and the geographical distance between the SOEs and their government controllers. Although both the corporate control distance and the geographical distance affect the state's costs of acquiring information about the SOEs, the former is created intentionally by the state to delegate decision rights, and the latter is largely exogenous. We find that local SOEs’ investment efficiency is positively associated with the extensiveness of pyramids but negatively related to the geographical distance. The positive impact of pyramid-building on investment efficiency remains strong even when information costs captured by the geographical distance are low. However, the two distance measures lose their impact on investment efficiency when local governments reclaim control through a vertical interlock of chairman. Our results indicate that the credibility of the government's intention to delegate decision rights is vital to the SOEs’ efficiency when government intervention is the norm in China.

This study examines the effect of family control on the cash holding policy in China. We find that family firms with excess control rights tend to have high cash holdings that are tunneled rather than being invested or paid to shareholders. We further show that the incentive for controlling families to hold cash and for tunneling is exacerbated by the agency conflict between controlling and minority shareholders, i.e., it is weakened after the Chinese Non-tradable share (NTS) reform and strengthened by the presence of multiple large shareholders who probably play no monitoring role in Chinese family firms. Furthermore, family firms’ incentive to hold cash for tunneling is influenced by the unique characteristics of Chinese firms in the following ways: the incentive is stronger when the family founder has one child and face family succession problem, and when the founder has political connections and directly involves in firm’s management; while it is weakened by family founder’s social interpersonal trust with other entrepreneurs through their membership of Chambers of Commerce. Overall, we argue that family firms in China tend to hold high levels of cash for tunneling, which harms firm value, while the severe controlling-minority shareholder agency conflicts and unique Chinese family characteristics only make this situation worse.

This study examines the value of political capital in the Chinese IPO market. We find a positive relationship between a politically connected executive and the probability of IPO approval of entrepreneurial firms. We further identify that shareholders value those connections and give a market premium to connected firms after the firms go public. We provide evidence that other types of political capital gained through external sources, such as politically connected sponsors and PE investors, also bring benefits to the firms in their IPO approval, and these connections substitute for the effect of the executive's political connections on IPO approval. We argue that in emerging markets where government intervention is still prevalent, political capital does create value and entrepreneurial firms usually build political capital to facilitate their access to the IPO market, although other types of political capital do not bring further benefits into the post-IPO market.

This study investigates how political patronage influences local firms’ investment decisions in China, focusing on changes in patronage ties resulting from provincial leadership turnover. By examining prefectural officials with connections to their provincial superiors, we find that firms in these regions experience increased investment expenditures, albeit with reduced efficiency. This effect is primarily driven by stronger promotion incentives for local officials, bolstered by favoritism from provincial patrons. While political patronage helps address agency problems within political hierarchies, our findings highlight its adverse economic impact due to misaligned interests between politicians and the public.