Political Connections, Legal Environment, and Corporate Valuation in Chinese Public Family Firms

Abstract

Using a uniquely selected family-firm data set, we show that Chinese family firms are, on average, more valuable than nonfamily firms, and that their superior performance can be explained in part by their political connections. Chinese family firms in which the chairperson or CEO is politically active have substantially higher corporate valuations than other family firms. Our findings support the view that the rapid growth of China's private sector is driven by certain alternative mechanisms. As we demonstrate, in an emerging economy, political connections can be a mechanism for responding to the legal system's failure to adequately protect private property rights.

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