Political turnovers, ownership, and corporate investment in China

Political turnovers, ownership, and corporate investment in China

We examine the impact of political influence and ownership on corporate investment by exploiting the unique way provincial leaders are promoted in China. The tournament-style promotion system creates incentives for new governors to exert influence over investment in the early years of their term. We...

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Bibliographic Details
Main Authors: CAO, Jerry X., BRANDON, Julio, LENG, Tiecheng, ZHOU, Sili
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2016
Subjects:
Corporate investment
Political turnover
China
SOE
Political uncertainty
Grabbing-hand
Crowding out
Investment efficiency
Asian Studies
Corporate Finance
Finance and Financial Management
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/6420
https://ink.library.smu.edu.sg/context/lkcsb_research/article/7419/viewcontent/Political_Turnover_Ownership_2016_wp.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:We examine the impact of political influence and ownership on corporate investment by exploiting the unique way provincial leaders are promoted in China. The tournament-style promotion system creates incentives for new governors to exert influence over investment in the early years of their term. We find a divergence in investment rates between state owned enterprises (SOEs) and private firms following political turnover. SOEs increase investment by 6.0% following the turnover while investment rates for private firms decline, suggesting that the political influence exerted over SOEs may crowd out private investment.

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