A key aspect of Chinese-style institutions is that the growth of the economy can be severely restricted by the adjustment and implementation of policy, leading to serious uncertainty in business practices. This paper investigates whether political connections help private firms obtain policy information ahead of public disclosure that would allow them to hedge against policy uncertainty. Using the quarterly data on non-financial private listed companies over 2007:Q1–2017:Q4, we find that the negative effect of policy uncertainty on fixed-asset investment is lower in politically connected firms than in non-connected firms, especially in industries with low asset reversibility and regions with a high degree of marketization. Further, a positive mitigation of policy uncertainty exists in firms whose top executives served as officials rather than deputies, and higher administrative as well as finance-related political connections show more information advantage. In addition, robust evidence is provided that controls the impacts of political connections on financing constraints, business performance and policy burdens, overcoming potential endogeneity, and the cash-holdings perspective. Our findings suggest that political connections are conducive to mitigate information asymmetry between private firms and policymakers in China.

Using the data of Chinese industrial enterprises, we examine how the incentive to reach GDP growth targets affects the local firms' capacity utilization. We find that Chinese economic growth targets exhibit a persistent pattern of top-down amplification along different jurisdiction levels, which is associated with a decline in local firms' capacity utilization. Moreover, the effect of amplified targets on overcapacity is more pronounced (1) when officials utilize hard-constraint vocabulary in setting the economic growth target, (2) during the National Congress of Communist Party, and (3) when the age of prefecture-level officials is close to 55. We also find officials intervene local firms' capacity decisions by increasing private communication with local entities and loosening public policies for local firms within their jurisdictions. Further results show that the amplification of economic targets is detrimental to future development of both regional economy and local firms.