Political uncertainty and corporate investment: Evidence from China

Heng An, Yanyan Chen, Danglun Luo and Ting Zhang

Journal of Corporate Finance, 2016, vol. 36, issue C, 174-189

Abstract: 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.

Keywords: Political turnover; Corporate investment; Local government officials; Chinese market; Transition economy (search for similar items in EconPapers)
JEL-codes: G15 G18 G32 G38 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (193)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:36:y:2016:i:c:p:174-189

DOI: 10.1016/j.jcorpfin.2015.11.003

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