IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v27y2022i3p3490-3509.html
   My bibliography  Save this article

Turnover of local government core officials, political connections and the investment and financing of private‐sector enterprises

Author

Listed:
  • Han Yu
  • Abraham Y. Nahm
  • Zengji Song

Abstract

In this study, we examined the power operation and policymaking mechanisms of local governments in China and analysed the sources of risk in macroeconomic policies. Based on the reality of local governance in China, this article defines political uncertainty as normal or abnormal changes in the Standing Members of the Communist Party of China (CPC) Provincial‐level Committee. We analysed the impact of turnovers of these local core officials upon the investment and financing of local private‐sector enterprises. We found that when changes in provincial inner core officials happened normally, the long‐term impact on the investment and financing of local private‐sector enterprises was not so obvious. However, when senior officials were investigated for corruption, the investment and financing of enterprises dropped significantly. For enterprises with personal political capital only, the impact of local core official turnover upon firm financing was even more pronounced. For private‐sector enterprises with partial state ownership, however, this negative impact was significantly weakened in the long term.

Suggested Citation

  • Han Yu & Abraham Y. Nahm & Zengji Song, 2022. "Turnover of local government core officials, political connections and the investment and financing of private‐sector enterprises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3490-3509, July.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:3:p:3490-3509
    DOI: 10.1002/ijfe.2334
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.2334
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.2334?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    2. Xu, Nianhang & Chen, Qinyuan & Xu, Yan & Chan, Kam C., 2016. "Political uncertainty and cash holdings: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 276-295.
    3. Nianhang Xu & Xinzhong Xu & Qingbo Yuan, 2013. "Political Connections, Financing Friction, and Corporate Investment: Evidence from Chinese Listed Family Firms," European Financial Management, European Financial Management Association, vol. 19(4), pages 675-702, September.
    4. Nie, Huihua & Jiang, Minjie & Wang, Xianghong, 2013. "The impact of political cycle: Evidence from coalmine accidents in China," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 995-1011.
    5. Raymond Fisman & Yongxiang Wang, 2015. "The Mortality Cost of Political Connections," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1346-1382.
    6. Pei Sun & Kamel Mellahi & Mike Wright & Haoping Xu, 2015. "Political Tie Heterogeneity and the Impact of Adverse Shocks on Firm Value," Journal of Management Studies, Wiley Blackwell, vol. 52(8), pages 1036-1063, December.
    7. Liu, Laura Xiaolei & Shu, Haibing & Wei, K.C. John, 2017. "The impacts of political uncertainty on asset prices: Evidence from the Bo scandal in China," Journal of Financial Economics, Elsevier, vol. 125(2), pages 286-310.
    8. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
    9. Bao, Xiaolu & Johan, Sofia & Kutsuna, Kenji, 2016. "Do political connections matter in accessing capital markets? Evidence from China," Emerging Markets Review, Elsevier, vol. 29(C), pages 24-41.
    10. Zhou, Zhengyi, 2017. "Government ownership and exposure to political uncertainty: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 152-165.
    11. Cull, Robert & Xu, Lixin Colin & Yang, Xi & Zhou, Li-An & Zhu, Tian, 2017. "Market facilitation by local government and firm efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 460-480.
    12. Wang, Lihong, 2015. "Protection or expropriation: Politically connected independent directors in China," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 92-106.
    13. Zhou, Wubiao, 2013. "Political connections and entrepreneurial investment: Evidence from China's transition economy," Journal of Business Venturing, Elsevier, vol. 28(2), pages 299-315.
    14. Ding, Shujun & Jia, Chunxin & Wu, Zhenyu & Zhang, Xiaoqing, 2014. "Executive political connections and firm performance: Comparative evidence from privately-controlled and state-owned enterprises," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 153-167.
    15. Liu, Qigui & Tang, Jinghua & Tian, Gary Gang, 2013. "Does political capital create value in the IPO market? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 395-413.
    16. Weiwen Li & Ai He & Hailin Lan & Daphne Yiu, 2012. "Political connections and corporate diversification in emerging economies: Evidence from China," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 799-818, September.
    17. Fan, Joseph P.H. & Rui, Oliver Meng & Zhao, Mengxin, 2008. "Public governance and corporate finance: Evidence from corruption cases," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 343-364, September.
    18. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
    19. Liu, Qigui & Luo, Tianpei & Tian, Gary, 2016. "Political connections with corrupt government bureaucrats and corporate M&A decisions: A natural experiment from the anti-corruption cases in China," Pacific-Basin Finance Journal, Elsevier, vol. 37(C), pages 52-80.
    20. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2015. "Mixing business with politics: Political participation by entrepreneurs in China," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 220-235.
    21. Zengji Song & Abraham Y. Nahm & Zongyi Zhang, 2017. "Partial State Ownership, Political Connection, and Financing: Evidence from Chinese Publicly Listed Private Sector Enterprises," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(3), pages 611-628, March.
    22. Chen, Shimin & Sun, Zheng & Tang, Song & Wu, Donghui, 2011. "Government intervention and investment efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 259-271, April.
    23. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, vol. 67(1), pages 45-84, February.
    24. Hou, Qingsong & Hu, May & Yuan, Yuan, 2017. "Corporate innovation and political connections in Chinese listed firms," Pacific-Basin Finance Journal, Elsevier, vol. 46(PA), pages 158-176.
    25. Lauren Cohen & Joshua Coval & Christopher Malloy, 2011. "Do Powerful Politicians Cause Corporate Downsizing?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1015-1060.
    26. An, Heng & Chen, Yanyan & Luo, Danglun & Zhang, Ting, 2016. "Political uncertainty and corporate investment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 174-189.
    27. Nan Gao & Cheryl Xiaoning Long & Lixin Colin Xu, 2016. "Collective Leadership, Career Concern, and the Housing Market in China: The Role of Standing Committees," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 1-13, February.
    28. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    29. Jie Chen & Danglun Luo & Guoman She & Qianwei Ying, 2017. "Incentive or Selection? A New Investigation of Local Leaders’ Political Turnover in China," Social Science Quarterly, Southwestern Social Science Association, vol. 98(1), pages 341-359, March.
    30. Cumming, Douglas & Rui, Oliver & Wu, Yiping, 2016. "Political instability, access to private debt, and innovation investment in China," Emerging Markets Review, Elsevier, vol. 29(C), pages 68-81.
    31. Danglun Luo & Qianwei Ying, 2014. "Political Connections and Bank Lines of Credit," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(03), pages 5-21, May.
    32. Firth, Michael & Malatesta, Paul H. & Xin, Qingquan & Xu, Liping, 2012. "Corporate investment, government control, and financing channels: Evidence from China's Listed Companies," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 433-450.
    33. Danglun Luo & Qianwei Ying, 2014. "Political Connections and Bank Lines of Credit," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S3), pages 5-21.
    34. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    35. Chen, Carl R. & Li, Yingqi & Luo, Danglun & Zhang, Ting, 2017. "Helping hands or grabbing hands? An analysis of political connections and firm value," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 71-89.
    36. Fung, Simon Y.K. & Gul, Ferdinand A. & Radhakrishnan, Suresh, 2015. "Corporate political connections and the 2008 Malaysian election," Accounting, Organizations and Society, Elsevier, vol. 43(C), pages 67-86.
    37. Francis, Bill B. & Hasan, Iftekhar & Zhu, Yun, 2014. "Political uncertainty and bank loan contracting," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 281-286.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:bofitp:2019_004 is not listed on IDEAS
    2. Yuping Deng & Yanrui Wu & Helian Xu, 2020. "Political Connections and Firm Pollution Behaviour: An Empirical Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 867-898, April.
    3. Li, Xiaorong & Luo, Jingbo & Chan, Kam C., 2018. "Political uncertainty and the cost of equity capital," Finance Research Letters, Elsevier, vol. 26(C), pages 215-222.
    4. Swanpitak, Tanapond & Pan, Xiaofei & Suardi, Sandy, 2020. "The value of family control during political uncertainty: Evidence from Thailand's constitutional change in 201411We are grateful for helpful comments and suggestions provided by Shu-Ching Chou, Wooch," Emerging Markets Review, Elsevier, vol. 44(C).
    5. Chengxue Yao & Fan Jiang & Liang Guo, 2023. "Fixed investment or financial assets investment: Evidence from political uncertainty in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 427-450, March.
    6. Li, Zhimin & Cheng, Lei, 2020. "What do private firms do after losing political capital? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 60(C).
    7. Han Yu & Abraham Nahm & Zengji Song, 2023. "State‐owned enterprises' political capital, city administrative rank and economic resources acquisition: Empirical evidence from Chinese capital markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 28-42, January.
    8. Xu, Nianhang & Chen, Qinyuan & Xu, Yan & Chan, Kam C., 2016. "Political uncertainty and cash holdings: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 276-295.
    9. Kong, Dongmin & Cheng, Xu & Jiang, Xiandeng, 2021. "Effects of political promotion on local firms’ social responsibility in China," Economic Modelling, Elsevier, vol. 95(C), pages 418-429.
    10. Yu, Xiaojun & Yao, Yao & Zheng, Huanhuan & Zhang, Lin, 2020. "The role of political connection on overinvestment of Chinese energy firms," Energy Economics, Elsevier, vol. 85(C).
    11. Yu-Hong Ai & Di-Yun Peng & Huan-Huan Xiong, 2021. "Impact of Environmental Regulation Intensity on Green Technology Innovation: From the Perspective of Political and Business Connections," Sustainability, MDPI, vol. 13(9), pages 1-23, April.
    12. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political turnover and firm pollution discharges: An empirical study," China Economic Review, Elsevier, vol. 58(C).
    13. Zhi Wang & Miao Yu, 2022. "Political embeddedness and firms' growth," Kyklos, Wiley Blackwell, vol. 75(1), pages 127-153, February.
    14. Wei, Chunyan & Hu, Shiyang & Chen, Feng, 2020. "Do political connection disruptions increase labor costs in a government-dominated market? Evidence from publicly listed companies in China," Journal of Corporate Finance, Elsevier, vol. 62(C).
    15. Bijoy Chandra Das & Fakhrul Hasan & Soma Rani Sutradhar, 2024. "The impact of economic policy uncertainty and inflation risk on corporate cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 865-887, April.
    16. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political connections and firm pollution behaviour: An empirical study," BOFIT Discussion Papers 4/2019, Bank of Finland Institute for Emerging Economies (BOFIT).
    17. Chen, Yanyan, 2022. "Does political turnover affect corporate investment? Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PA).
    18. Cheng, Maoyong & Guo, Pin & Jin, Justin Yiqiang & Geng, Hongyan, 2021. "Political uncertainty and city bank lending in China: Evidence from city government official changes," Emerging Markets Review, Elsevier, vol. 49(C).
    19. Karami, Gholamreza & Mehrani, Sasan & Beik Boshrouyeh, Salman & Ezadpour, Mostafa & Mohebbi, Masoud & Samavat, Milad, 2024. "Political connections and labor investment efficiency," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 568-580.
    20. Yu, Xin & Zheng, Ying, 2019. "The value of political ties for firms experiencing enforcement actions: Evidence from China," The British Accounting Review, Elsevier, vol. 51(1), pages 24-45.
    21. Liu, Wei & De Sisto, Marco & Li, Wen Helena, 2021. "How does the turnover of local officials make firms more charitable? A comprehensive analysis of corporate philanthropy in China," Emerging Markets Review, Elsevier, vol. 46(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:27:y:2022:i:3:p:3490-3509. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.