NATIONAL BUREAU OF ECONOMIC RESEARCH
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In the Shadows of the Government: Relationship Building During Political Turnovers

Hanming Fang, Zhe Li, Nianhang Xu, Hongjun Yan

NBER Working Paper No. 25300
Issued in November 2018
NBER Program(s):Asset Pricing, Public Economics, Political Economy

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.

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Document Object Identifier (DOI): 10.3386/w25300

 
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