Political affiliation, cash flow volatility, and debt maturity in China

Using a large dataset with over half a million observations for 161 thousand Chinese firms, we examine the role of political affiliation on the debt maturity of firms experiencing varying levels of financial volatility. Our findings indicate that politically affiliated firms have reduced capacity to adjust their debt maturity when firm-specific risk rises. Furthermore, we demonstrate that this effect is stronger for firms affiliated with local levels of government relative to central levels. We argue that political affiliation can play a disciplining role in environments where credit is controlled by the state and politicians’ careers depend on local economic performance.