Political uncertainty and corporate investment: Evidence from China

Using hand-collected data on changes of government officials in 277 Chinese cities, we examine how political turnover affects corporate investment in a transitional economy. We find that political turnover leads firms to significantly reduce corporate investment, particularly when the new official i...

Full description

Saved in:
Bibliographic Details
Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2016-02, Vol.36, p.174-189
Main Authors: An, Heng, Chen, Yanyan, Luo, Danglun, Zhang, Ting
Format: Article
Language:English
Subjects:
Chinese market
Corporate investment
Investments
Local government officials
Political appointments
Political risk
Political systems
Political turnover
Public enterprise
Studies
Transition economy
Volatility
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Using hand-collected data on changes of government officials in 277 Chinese cities, we examine how political turnover affects corporate investment in a transitional economy. We find that political turnover leads firms to significantly reduce corporate investment, particularly when the new official is an outsider appointed by a higher level government. The effect of political turnover on corporate investment is stronger for state-owned enterprises, capital intensive firms, and firms deemed locally important. Overall, the volatility of corporate investment increases with political turnover. Finally, the investment decline due to political turnover has significantly negative impact on the profitability of private firms, but not state-owned firms. •Political turnover leads firms to significantly reduce corporate investment.•The reduction is more pronounced for state-owned enterprises, capital intensive firms, and firms deemed locally important.•Outsider appointment has more significant impact on investment than local promotion.•Volatility of corporate investment increases with political turnover.•Investment decline due to political turnover hurts the profitability of private firms.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2015.11.003