Politically Motivated Corporate Decisions: Evidence from China

51 Pages Posted: 29 Feb 2016 Last revised: 7 Feb 2019

See all articles by David Feldman

David Feldman

Banking and Finance, UNSW Business School, UNSW Sydney; Financial Research Network (FIRN)

Chang Mo Kang

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Jiaming Li

UNSW Business School

Konark Saxena

University of New South Wales

Date Written: January 29, 2019

Abstract

Periodically, Chinese province heads compete for promotions to national congresses. We document pervasive corporate decision-making cyclicality, synchronized with political cycles: firms increase tax-payments by 13.6% one-year before elections and investments by 6% two-years before. Cyclicality is necessary to “survive,” but insufficient to “win,” and weaker in economically weak (strong) provinces, where politicians are rarely (often) promoted. Chinese investors value promotions and politically motivated corporate activities more than other investors, e.g., in Hong Kong. We provide theoretical justification for promotion tournaments, predicting our empirical findings. We contribute to better understanding of the influence of political calendars and incentives on economic activity.

Keywords: Politically Motivated Corporate Decisions, Corporate Investments, Taxes, Agency, China

JEL Classification: G30, G18, G38, D72

Suggested Citation

Feldman, David and Kang, Chang Mo and Li, Jiaming and Saxena, Konark, Politically Motivated Corporate Decisions: Evidence from China (January 29, 2019). Available at SSRN: https://ssrn.com/abstract=2738946 or http://dx.doi.org/10.2139/ssrn.2738946

David Feldman (Contact Author)

Banking and Finance, UNSW Business School, UNSW Sydney ( email )

UNSW Sydney, NSW 2052
Australia
+61 2 9385 5748 (Phone)
+61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Chang Mo Kang

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Jiaming Li

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Konark Saxena

University of New South Wales ( email )

School of Banking and Finance
Australian School of Business
Sydney, NSW 2052
Australia

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