How important are political connections amid policy shocks?—Evidence from Chinese real estate firms

Abstract In this study, we investigate the value of political connections (PCs) when firms face policy shocks. Utilizing Chinese real estate firms, we adopt an event‐study methodology with policy shocks that pertain to the real estate industry over the period 2010–2016. Specifically, we find that PCs are positively associated with firms’ cumulative abnormal returns during policy shocks. Further, we find that politically connected firms possess an information advantage and have better access to scarce local resources. Overall, our results highlight the importance of politically connected directors and the conditions their connections are the most useful for during policy shocks.