False Hopes: The Impact of National Leaders’ Corporate Visits on Industry Peers

Abstract

I study how politicians' activities affect the stock market and firm performance. Using hand-collected data on China's national leaders' corporate visits, I investigate the industry-wide implications of these visits. I find that over the five days surrounding a visit, an average industry peer's value increases by 4% of its total assets. This result reflects investors' favourable reactions to leaders' indications of more government support for the industry. However, the industry peer's profitability plummets by more than 10% in the following two years. Further analysis reveals that after the visits, industry peers increase their investments, presumably in anticipation of additional government subsidies and credits. However, these resources are never delivered, and the profitability of these firms falls. My findings suggest that national leaders' visits do not help boost the targeted industries, and firms should carefully interpret the politicians' activities.

Keywords: Politician Activity, Political Economy, Firm Value, Firm Performance, China

JEL Classification: G14, G31, H71, P26