Politically connected CEOs and liquidity risk: some Chinese evidence

Contributing to the literature on the political connections and liquidity risk, we identify a negative correlation between political connections and stock liquidity risk in the Chinese market. The results are robust to the matching analysis, difference-in differences, and the exclusion of a set of firms that political connections are terminated suddenly. Supplementary analyses indicate that more government resources and favoritism, better fundamentals, performance, and transparent information environment, that affected by political connections, could be the possible channels through which political connections help to mitigate stock liquidity risk. Furthermore, we observe that this negative relationship is amplified in State-Owned enterprises (SOEs), during periods of financial crisis, and firms in regions with weaker legal institutions.