Working Paper: NBER ID: w25300
Authors: Hanming Fang; Zhe Li; Nianhang Xu; Hongjun Yan
Abstract: We document that following a turnover of the Party Secretary or mayor of a city in China, firms (especially private firms) headquartered in that city significantly increase their "perk spending." Both the instrumental-variable-based results and heterogeneity analysis are consistent with the interpretation that the perk spending is used to build relations with local governments. Moreover, local political turnover in a city tends to be followed by changes of Chairmen or CEOs of state-owned firms that are controlled by the local government. However, the Chairmen or CEOs who have connections with local government officials are less likely to be replaced.
Keywords: Political Turnover; Perk Spending; Government Relations; State-Owned Enterprises; China
JEL Codes: G30; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| More government subsidies (H29) | Better future performance (ROA or ROE) (L25) |
| Political turnover (J63) | Increase in firms' perk spending (H32) |
| Political turnover (J63) | Building relations with local governments (H70) |
| Increase in firms' perk spending (H32) | More government subsidies (H29) |
| Increase in firms' perk spending (H32) | Better access to financing (O16) |