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.
Fang, Hanming and Li, Zhe and Xu, Nianhang and Yan, Hongjun, In the Shadows of the Government: Relationship Building during Political Turnovers (November 22, 2018). Available at SSRN: https://ssrn.com/abstract=3288749 or http://dx.doi.org/10.2139/ssrn.3288749