Do politically connected subsidy recipients disclose less subsidy information?

Abstract

AbstractThis paper examines the association between firms’ political connections and their voluntary disclosure of information related to government subsidies, using a sample of Chinese non‐state‐owned enterprises. We find that politically connected subsidy recipients disclose less information about their subsidies (source and policy basis) in their annual reports than do unconnected firms. This association is mainly driven by connected firms whose subsidies are difficult to justify and are stronger for firms registered in more corrupt provinces and firms with higher media attention. In addition, connected firms disclosing more subsidy information receive fewer future subsidies than do other connected firms. These findings suggest that politically connected subsidy recipients tend to withhold subsidy information to reduce the costs that accompany public scrutiny of subsidies granted through relationships.