Implications of Princeling Connections for Business Groups and Internal Capital Markets: Evidence from Chinese Listed Firms

Princelings, as a proxy for rent-seeking bureaucrats, help firms to gain many types of privileges including access to bank loans and insider information. This enables princeling-backed firms to be more competitive in the Chinese market. Similarly, business groups enable firms to finance from internal capital markets, which ensures their subsidiaries are free of financial constraints. In China’s emerging economy with its unique institutional background, when business groups establish princeling connections, each party contributes characteristics that improve their functioning. In this thesis, we investigate the impacts of princeling connections and the features of business groups separately and then collectively, to thoroughly explore their roles and relationships.