We examine whether engagement in rent-seeking improves firm value in China. Rent-seeking is defined as a firm's use of resources to establish a relationship with the government to obtain government-controlled resources. We incorporate political rents and associated costs into an analytical framework to examine the relationship between rent-seeking and firm value. Using a sample of non-state-owned firms listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange from 2007 to 2013, we find evidence of the presence of political rents in the form of government subsidies and evidence of associated costs in the forms of corporate philanthropy and excess management remuneration, which largely explains the insignificant relationship found between rent-seeking and firm value. Our further analysis shows that rent-seeking behavior of firms reduces production efficiency, providing additional evidence to support our thesis that engagement in rent-seeking does not enhance firm value in the Chinese context. In an economy with weak institutions, in particular with weak protection for shareholders, managers and politicians can become rent-seekers and take a considerable share of the economic benefits derived from rent-seeking.

This study seeks to explain why firms respond in different ways to similarexternal administrative pressures, such as government demands for charitablegiving, particularly in a transitional economy such as China's. Taking theperspective of the CEO's representation on external demands, the studyexplores the relationship between political affiliation and corporategiving, stimulated by powerful and politically affiliated CEOs, who are thegovernment's natural constituency and who comply with governmental demandsfor donation. The study introduces contingent factors that influence theCEO's perception of how to satisfy government demands, and that moderate therelationship between political affiliation and corporate giving. Usingfirm-level data of corporate contributions following the Sichuan earthquakeof May 12, 2008, we find that corporations with CEOs who hold politicalaffiliations have a significantly higher probability of donation and alsomore cash giving. This relationship is moderated by contingent factors suchas government ownership, financial condition, and concentration of votingrights.