Leadership vacuum and corporate investment

Maoyong Cheng, Yu Meng, Justin Jin and S.M. Khalid Nainar

Journal of Financial Stability, 2024, vol. 74, issue C

Abstract: The vacuum caused by the absence of a political leader has a major economic impact. We manually collect data on the absence of a political leader in 247 Chinese cities between 2009 and 2019 and find that firms reduce their investment by an average of 2.326 % for each month that a political office remains vacant. This result holds even after subjecting the data to a series of endogeneity tests, robustness tests, and alternative explanations. We also demonstrate that the absence of a political leader reduces corporate investment through increased uncertainty of economic policy, reduced governmental efficiency, and disrupted political connections. Finally, our results show that this kind of absence has a more pronounced impact on younger firms, firms located in provinces with slower marketization, firms located in provinces with weak media development, non-state-owned enterprises, and firms located in regions under significant promotional pressure.

Keywords: Leadership Vacuum; Political Leader; Corporate Investment (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:74:y:2024:i:c:s1572308924000871

DOI: 10.1016/j.jfs.2024.101302

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