This research examines the effect of directors in Chinese listed firms, who are politically connected and/or have boardroom interlocking, on private equity placements (PEPs).
We find that interlocked directors can significantly influence the propensity to apply for PEPs, approval of PEPs and reduce the cost of PEPs while providing greater access to proceeds from PEPs through lowering information asymmetry and information cost. On the contrary, although politically connected directors have a significant role in the approval of PEPs, they increase agency problems which lead to increase cost of PEPs and reduced proceeds from PEPs.
These results clearly reveal that directors’ political connection in China diminishes the benefits of interlocking directors for firms having directors with both interlocking and political ties.
Fonseka, M. M., Farooque, O. A., Rajapakse, R. L. T. N. and Tian, G-L. (2017). “Political and interlocking connections in the boardroom on private equity placements”. Emerging Markets Finance and Trade.
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