Political and Interlocking Connections in the Boardroom on Private Equity Placements

Abstract

This study examines the influence of directors, who are politically connected and/or have boardroom interlocking, on private equity placements (PEPs) in Chinese listed firms.We document 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. Although politically connected directors have a significant role in the approval of PEPs, they are more likely to reduce the monitoring effects and increase agency problems which lead to increase cost of PEPs and reduced proceeds from PEPs. The results also reveal that political connection diminish the benefits of interlocking directors for firms having directors with both interlocking and political ties.