Existing literature provides enormous estimates of political connections on various political and economic outcomes. However, this paper focuses on the origins of firm-level political connections by analyzing how firms hire and compensate revolving-door officials. I theorize that firms diversify their portfolio of revolving-door officials to obtain both political influence and issue-specific expertise simultaneously. To test this theory, I construct a unique database that contains standardized career experience of over 20,000 revolving-door officials who serve in the Chinese publicly listed firms from 2008 through 2016. Supporting the view of issue-specific expertise (“know-how”), findings show that firms offer higher cash compensation to revolving-door officials with issue-specific expertise than others without expertise. Supporting the view of political influence (know-who), firms offer more stock compensation to ex-officials with higher-ranked government positions.
Supplementary notes can be added here, including code and math.