Essays on Political Connections and Financial Decisions of Households and Corporates

This thesis revolves around the examination of political connections in financial decisions, both at the household and corporate levels. This thesis comprises three main empirical chapters. Chapter 1 acts as the outline and introduction for the thesis. Chapter 2 utilizes data from 28,113 Chinese households in 2013 to identify that political connection quality positively influences households' granted amounts of loans. This chapter also recognizes a positive relationship between political connections at the community level and loan amounts granted to households. Finally, the results show that sociability can positively mediate the relationship between political connection quality and the amount of bank loans. Chapter 3 investigates the impact of CEOs with Party school education on corporate investment efficiency, applying data from 18,195 Chinese-listed firms spanning the period 2003 to 2020. The empirical findings demonstrate that both SOEs and private firms led by CEOs with Party school education exhibit more efficient investment practices, and reveal the mechanism that CEOs with Party school education display a regardless level of monetary compensation incentive in corporate investment decisions, alleviating potential agency conflicts. Finally, this chapter highlights that CEOs with Party school education can access more government resources through their connections to governments, thereby improving investment efficiency. Chapter 4 delves into the impact of CEOs with party school education on the ESG performance of 8,104 SOEs from 2010 to 2020. The empirical analysis reveals a significant enhancement in the ESG performance of SOEs led by CEOs with party school education. Furthermore, this chapter identifies a distinct pattern where this positive impact becomes more pronounced in regions experiencing higher economic development pressure. Finally, it identifies CEOs with political promotion incentives that can strengthen the baseline relationship. Chapter 5 encapsulates critical observations, outlines limitations encountered during the research, and identifies potential avenues for future investigations.