The existing literature on political capital and bank lending has largely overlooked the role of political environment. Based on the theories of political marketplace, all-pay auction and political instability, we examine the conditional effect of political capital on access to bank loans with political environment surrounding private firms changing, using a nationwide survey of private firms in 2010. In particularly, we characterize the political environment with political capital inequality and political instability. We find that private firms have more difficulty gaining access to bank lending with the increase in the degree of political capital inequality. Furthermore, political capital exerts a positive effect on access to bank loans only when political capital inequality within a province exceeds 0.4775 and political instability does not exceed 0.7.

Many prior studies conclude that Chinese independent directors engage in window dressing. The results of research into the relationship between the proportion of independent directors on the board and firm performance are mixed. We use the number of negative opinions issued by a firm’s independent directors as a proxy for their effectiveness in the monitoring role they play. We hypothesize that both board structure and the personal characteristics of independent directors influence the effectiveness of monitoring. Using a matched control sample of firms in which there were no disputes in the board room over the sample period, we find that independent directors who have more political capital, such as former government officials, Communist Party members, and those who also have a senior management position in another firm are more likely to issue negative opinions. We also find that the independent directors of firms with more balanced power structure in board and those that operate in a better institutional environment have a greater tendency to issue negative opinions.

Firm diversifications are prevalent in many emerging economies in contrast to the practices in developed economies. A fundamental difference between these two types of economies is the existence of sound economic institutions including in particular property rights protection. Indeed it has been argued that diversified firms may thrive in situations of poor economic institutions, but much research is needed to substantiate this idea. In this paper, using a survey data set of private enterprises in China, we examine whether cross-region variations in the degree of property rights protection a¤ect the extent of firm diversification. We find that poorer property rights protection causes firms to be more diversified. We then explore several possible mechanisms through which property rights protection may affect firm diversification.

Firm diversifications are prevalent in many emerging economies in contrast to the practices in developed economies. A fundamental difference between these two types of economies is the existence of sound economic institutions including in particular property rights protection. Indeed it has been argued that diversified firms may thrive in situations of poor economic institutions, but much research is needed to substantiate this idea. In this paper, using a survey data set of private enterprises in China, we examine whether cross-region variations in the degree of property rights protection a¤ect the extent of firm diversification. We find that poorer property rights protection causes firms to be more diversi?ed. We then explore several possible mechanisms through which property rights protection may affect firm diversification.