Journal of Accounting, Finance & Management Strategy





Volume 15, Number 1, June 2020

Political Connections, Information Asymmetry and Corporate Financing Decisions: Evidence From China


This paper examines the relationship among political connections, information asymmetry and financing decisions. We use a sample of Chinese listed companies from 2008 to 2013. The results indicate that firms with political connections have lower leverage, which is contradictory to existing literature. However, we show a moderating effect on the negative relation between political connections and leverage after taking the level of information asymmetry into consideration, leading to an increase of leverage in politically-connected firms. Our results shed lights on the soft budget constraint and imply that information asymmetry plays a pivotal role in determining financing decisions in politically-connected firms.

Keywords: Political Connections, Information Asymmetry, Financing Decisions, China.

JEL Classification: D72, D8, D25