��������

High-level political connections within a company’s board of directors can significantly enhance market perceptions of the value of corporate cash holdings, according to a new study.

Politically connected firms around the world often receive economic favours, but until now the true extent of this financially beneficial relationship was unknown.

Leading experts in corporate finance and governance analysed 16,706 items of data from Chinese firms over a nine-year period, to examine how political power influences the market value of cash holdings. These data included the company’s cash reserves, each director’s position in the hierarchy of power, and corporate governance measures. 

The findings reveal that directors with high-level political power - such as those ranked at the Bureau-Department level and higher (e.g. central government) in China's civil service - help increase the flow of money through greater access to resources and better investment opportunities. By contrast, directors with low-level political power have little impact on corporate cash value. 

The research, led by the �������� and published in the , comes at a time when the barriers between business and government are under intense scrutiny. 

Lead author Professor Jia Liu, Director of the ��������’s Centre for Innovative and Sustainable Finance (CISF), said: “While focused on China, our findings hold implications for any country where political capital influences corporate success. They reveal how directors with high-level political influence help firms secure key investments and manage cash efficiently. This insight will help boards and management to create better political strategies and government practices.

“We’ve also challenged the notion that all politically connected directors are equally beneficial -political capital is not a one-size-fits-all asset.”

The study offers actionable insights for company boards and policymakers worldwide. It recommends firms evaluate the specific political and professional expertise of potential directors and leverage high-ranking political ties to increase the value of the company.

Meanwhile, governments and regulatory bodies can use these findings to inform corporate governance policies, ensuring that political connections are used to strengthen economic growth and not just individual profit. 

“Political sway can be used as a force for good to help drive the economy and maintain strong business models”, explained Professor Liu. “But the delicate balance between business and government is often abused and steps need to be taken to reduce corruption and promote transparency.

“Take for instance the Michelle Mone case in the UK. The businesswoman and member of the House of Lords has been accused of helping a company linked to her family secure big government contracts - worth hundreds of millions of pounds – during the COVID-19 pandemic. Investigators are looking into whether rules were broken and if she unfairly benefited from taxpayers’ money.”

In October last year, UK Prime Minister Sir Keir Starmer repaid £6,000 in gifts after a row over donations. Two months later the Government announced proposals to limit how much individuals and companies can donate to political parties as part of an effort to tighten the rules around money in politics. 

Meanwhile in the US, billionaire Tesla and X (Twitter) owner Elon Musk was announced as a co-chair of Donald Trump’s newly created Department of Government Efficiency (DOGE), which some critics say will give him influence over government policy and arguably the regulatory environment in which his enterprises operate.

“Some might see this move a bit like tasking a fox with the security of a chicken coop”, observed Professor Liu.

“Clearly, as the paper reveals, high-level political connections result in an influence that can benefit companies significantly, so close monitoring of politico-corporate relationships is essential for obviating any possibility of corruption.”

This research was a collaboration between the Universities of ��������, Birmingham, Sheffield, and St Andrews.