Abstract

The purpose of this paper is to study how political connections affect the employees’ benefits and the firm performance of private firms listed in Chinese stock market. I use a sample of 1,583 private firms from15 industries in Chinese A-share market (Shenzhen and Shanghai stock market) from 2008 to 2017. I find that the employees’ benefits in politically connected firms are not as high as generally expected, but the firms with political connections hire more employees in order to show their social responsibility. Common perception is that a politically connected firm will get lots of benefits from the government; however, the results show that the political connections damage the performance of the firm. The results also show that the improvement of employees’ benefits improves the firm performance, and the representative connection plays a more important role in improving the performance of firms when compared with official connection.