The Impact of Political Connection and Information Asymmetry on Investment Efficiency: Evidence from China

Abstract

This study investigates the impact of political connection and information asymmetry on the investment efficiency of firms in China. This paper employs a panel data regression analysis on a dataset comprising 4307 observations for listed companies from 2008 to 2015. The results indicate that if taken alone, neither political connection nor information asymmetry affects firms’ investment efficiency. However, the interactive effect of both political connection and information asymmetry significantly reduces firms’ investment efficiency. The results of this study help investors understand the forces that lead the Chinese firms to deviate from optimal investment decisions.

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