Do Politically Connected Subsidy-Receiving Firms Disclose Less Subsidy Information?

This 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-receiving firms 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, is stronger for firms registered in more corrupt provinces and for firms with higher media attention, and became weaker following the anti-corruption campaign starting in China in late 2012. 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.