Political Connection and Regulatory Scrutiny through Comment Letters: Evidence from China

Abstract Heese, Khan, and Ramanna (2017, hereafter, HKR) find that political connection (PC) positively predicts the receipt of comment letter (CL) reviews in the United States. This paper investigates whether this phenomenon exists in China and, if so, the specific channel by which it occurs. We find that Chinese publicly listed firms with PC are more likely to receive CLs from Chinese regulators, and this result is particularly strong for firms that have hired former officials from the lower tier of the political hierarchy. Additionally, the positive association between PC and the chance of receiving CLs is more pronounced in nonstate‐owned enterprises. Overall, we show that HKR's results hold for both the United States and China, and we add new evidence that state ownership and the level of connection moderate this relationship.