Political Uncertainty and Corporate Investment: Evidence from China
Heng An, Yanyan Chen, Danglun Luo, Ting Zhang
PII: S0929-1199(15)00149-2
Journal of Corporate Finance
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