Political Connections, Productivity and Firm Sales

We explore the significance of political connections vs. productivity for firms’ domestic sales and export performance in developing countries, using the data from the listed firms in China’s Shanghai and Shenzhen stock markets. We estimate firms’ total factor productivity and manually build a detailed dataset on firm’s political connections using public information released by firms. We find that more productive firms have larger sales in both domestic and international markets, but the effect of political connections differ. Political connections matter in a positive way for domestic sales, and employing a current member of a political body in China is more significant for domestic sales than employing a former government official. However, political connections are not significant for firm’s export sales.