Political Connection, Anti-Corruption Efforts and Firm¡¯s Loan Interest Rates

Using anti-corruption efforts as a natural experiment, we analyzes the effects and welfare consequences of political connection, with detailed data set of political connection and individual bank-loan contracts for listed companies in China from 2008 to 2014. We find that politically connected firms, on average, pay significantly lower loan interest rate, and firms would receive even lower interest rate if at least one of its top officers has or had served in government, or if their political connections are built by CEO or chairman of board, proves that political benefits exists in credit market. Our result also support that although both signaling and rent-seeking mechanism work in this process, rent-seeking effect plays a dominate role in China, specifically regional anti-corruption efforts and the recent anti-corruption campaign both reduce the favor of political connections in credit market.