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The Political Cycle of Corporate Investment: New Evidence from Chinese Manufacturing Firms

Time:2019-11-19 10:57:03  Hits:[]

Using near plant-level investment data from Chinese industrial firms, we show that firms significantly increase their investments right before expected turnovers of in prefecture governors. More importantly, increases in corporate investment are mainly driven by privately owned enterprises, especially those affiliated with government at or below the prefecture level. The effect is stronger for city officials with stronger career incentives and provinces with weaker institutions. Moreover, local governments use the credit channel to encourage corporate investment before political turnovers by relaxing the financial constraints of the private sector and by increasing the credit supply of city commercial banks under their jurisdiction.
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