Political Cycle, Local Officials’ Turnover and Resources Allocation
Author(s): Chen Yanyan, Luo Danglun, School of Economics and Management, South China Agricultural University, Lingnan College, Sun Yat-sen University
Pages: 40-52+103
Year: 2016 Issue: 5
Journal: Journal of Shanghai University of Finance and Economics
Keyword: local official; turnover cycle; investment expenditure; investment efficiency; GDP growth;
Abstract: This paper studies the effect of political cycle on firm investment,its phenomenon,function mechanism and economic consequences. Using the political cycle resulting from mayors’ turnover in 277 prefecture-level cities from 2001 to 2009,it comes to the results as follows:firstly,on the first and second years after mayors’ turnover,both investment expenditures and investment growth speeds are higher than the ones on the year of mayors’ turnover;on the third year after mayors’ turnover and later years,the two investment indexes are lower than the ones on the year of mayors’ turnover;and the investment peak appears on the second year after turnover;secondly,the reason for this phenomenon lies in the micro route of the increase in firm debt financing and the macro route of the expansion of government expenditures;their change patterns are basically consistent with investment behavior and the peaks of debt financing and government expenditures appear on the first year after turnover;thirdly,this phenomenon leads to the decrease in firm investment efficiency and the rise in over-investment;the peaks of over-investment degree and probability appear on the second year after turnover. It enriches the literature of the effect of political cycle on resources allocation in China,and promotes the understanding of the role of local officials in Chinese institutions.
Pages: 40-52+103
Year: 2016 Issue: 5
Journal: Journal of Shanghai University of Finance and Economics
Keyword: local official; turnover cycle; investment expenditure; investment efficiency; GDP growth;
Abstract: This paper studies the effect of political cycle on firm investment,its phenomenon,function mechanism and economic consequences. Using the political cycle resulting from mayors’ turnover in 277 prefecture-level cities from 2001 to 2009,it comes to the results as follows:firstly,on the first and second years after mayors’ turnover,both investment expenditures and investment growth speeds are higher than the ones on the year of mayors’ turnover;on the third year after mayors’ turnover and later years,the two investment indexes are lower than the ones on the year of mayors’ turnover;and the investment peak appears on the second year after turnover;secondly,the reason for this phenomenon lies in the micro route of the increase in firm debt financing and the macro route of the expansion of government expenditures;their change patterns are basically consistent with investment behavior and the peaks of debt financing and government expenditures appear on the first year after turnover;thirdly,this phenomenon leads to the decrease in firm investment efficiency and the rise in over-investment;the peaks of over-investment degree and probability appear on the second year after turnover. It enriches the literature of the effect of political cycle on resources allocation in China,and promotes the understanding of the role of local officials in Chinese institutions.
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