Working Paper: NBER ID: w21266
Authors: Raymond Fisman; Yongxiang Wang
Abstract: We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections-mortality relationship is attenuated in provinces where safety regulators' promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs.
Keywords: political connections; workplace fatalities; China; regulatory compliance; safety regulations
JEL Codes: D73; J81; P26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Political connections (D72) | Increased workplace fatalities (J28) |
| Political connections (D72) | Fewer reported safety violations (R48) |
| Worker deaths at connected firms (J28) | Decline in share prices (G10) |
| 'No safety, no promotion' laws (J28) | Reduced worker deaths at connected firms (J28) |