Abstract:Based on the turnover data of provincial party committee secretaries in China between 2000 and 2008, we find that the loan increment of local SOEs (state-owned enterprises) decreases by 18.9% in turnover years. We also document increased efficiency of long-term loans in turnover years. The effects of provincial leader turnover on bank loans only exist for local SOEs in eastern regions and more marketized provinces. Local officials have less of a political incentive to exert influence on bank credit allocation … Show more
“…We interpret our findings by referring to the government official vacancy. Nevertheless, there is an alternative explanation for the influence of government official turnover (Cao et al., 2019). When there is a government official vacancy, there must be a government official turnover.…”
This study focuses on a new political uncertainty phenomenon, that is, the government official vacancy, and examines its effects on foreign direct investment in China's cities. Using hand‐collected data about the vacancies of the municipal party secretary in China from 2003 to 2018, we find that the government official vacancy reduces foreign direct investment. A one unit (month) increase in the government official vacancy leads to a −2.225% decrease in foreign direct investment. Second, we show three possible channels through which the government official vacancy reduces foreign direct investment: reducing government efficiency, increasing economic policy uncertainty and increasing corruption. Finally, our results show that the effects of government official vacancies on foreign direct investment are stronger in cities with a strong media environment, cities with a low level of innovation and entrepreneurship and cities in the middle region of China. Our main results pass a series of robustness tests. Overall, our research offers novel evidence that political uncertainty has a negative impact on foreign direct investment.
“…We interpret our findings by referring to the government official vacancy. Nevertheless, there is an alternative explanation for the influence of government official turnover (Cao et al., 2019). When there is a government official vacancy, there must be a government official turnover.…”
This study focuses on a new political uncertainty phenomenon, that is, the government official vacancy, and examines its effects on foreign direct investment in China's cities. Using hand‐collected data about the vacancies of the municipal party secretary in China from 2003 to 2018, we find that the government official vacancy reduces foreign direct investment. A one unit (month) increase in the government official vacancy leads to a −2.225% decrease in foreign direct investment. Second, we show three possible channels through which the government official vacancy reduces foreign direct investment: reducing government efficiency, increasing economic policy uncertainty and increasing corruption. Finally, our results show that the effects of government official vacancies on foreign direct investment are stronger in cities with a strong media environment, cities with a low level of innovation and entrepreneurship and cities in the middle region of China. Our main results pass a series of robustness tests. Overall, our research offers novel evidence that political uncertainty has a negative impact on foreign direct investment.
“…In this situation, that is when government officials are stable, under the pressure of performance evaluation system with tournament style (Maskin et al. , 2000; Cao et al. , 2019), officials have incentives to intervene loan allocation of financial institutions and corporate investment plans for extracting both political and personal benefits.…”
Section: Theoretical Analysis and Hypothetical Developmentmentioning
confidence: 99%
“…Then the local governments will overinvest in infrastructure, development zones and other medium-to-long term fixed assets projects which will promote Officials' turnover and capital structure areas' GDP. In this situation, that is when government officials are stable, under the pressure of performance evaluation system with tournament style (Maskin et al, 2000;Cao et al, 2019), officials have incentives to intervene loan allocation of financial institutions and corporate investment plans for extracting both political and personal benefits. Therefore, the banks may provide more loans under the pressure from incumber government officials.…”
Section: Theoretical Analysis and Hypothetical Developmentmentioning
confidence: 99%
“…Therefore, the banks may provide more loans under the pressure from incumber government officials. Conversely, when the government officials change, the intervention from the government will be weakened, since the ability of new officials to influence banks' credit supply could be weaken (Cao et al, 2019). It is explained that during the turnover, new officials need time to face and adapt to the new environment or new political connection.…”
Section: Theoretical Analysis and Hypothetical Developmentmentioning
PurposeThe political influence on the determinants of capital structure has been under-researched for a long time. Taking the turnover of secretary of municipal committee as a political factor in China, this paper studies the effect of local government officials' turnover on firm's capital structure.Design/methodology/approachStarting with all A-shares listed firms in the Shanghai and Shenzhen Stock Exchanges from 2001 to 2018, this paper implements the OLS estimation, staggered difference-in-difference approach to investigate the effects of political turnover on the choice of capital structure.FindingsThe results show that, driven by government officials' turnover, firms will significantly reduce their leverage. When comparing between formal finance (bank loans) and informal finance (payables), the reduction of capital structure is mainly driven by banks, not by suppliers. Furthermore, two possible channels have been investigated. First, the reduction effects are mainly driven by the SOEs when classifying the types of corporate ownership into SOEs and non-SOEs. Second, the reduction effects exist in areas with the more intense government intervention when considering the heterogeneity of the development of institutional environment in provinces.Originality/valueThis paper first contributes to the literature on the determinants of corporate choice on capital structure. Second, this paper enriches the studies on the economic consequences of local government officials' turnover.
“…This study selected Chinese non‐SOEs as the research sample for three main reasons. First, even though the private sector has been and continues to be the major driving force behind China's economic development (Deng et al ., 2019), many non‐SOEs are still facing resource constrictions and financing constraints (Chen et al ., 2014; Cheng and Wu, 2019), such as access to long‐term loans (Cao et al ., 2019). Table 1 shows the mean leverage and long‐term debt of Chinese listed firms from 2010 to 2018.…”
Taking a political legitimacy perspective, this paper examines how the outward foreign direct investment (OFDI) of Chinese non‐state‐owned enterprises (non‐SOEs) in countries along the Belt and Road (B&R) affected their financing capabilities. It was found that the OFDI in B&R countries significantly increased the access of non‐SOE to long‐term and policy‐based loans, with this effect being more pronounced in firms that had stronger political connections and in areas that had greater political pressure, no prefecture‐level terminations of officials, and a lower marketisation degree. It was further found that the non‐SOE OFDI along the B&R improved the political performance of local officials and was an effective mechanism for enhancing financing capabilities.
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