Does political turnover affect corporate investment? Evidence from China

This paper adopts the dual perspectives of party/government officials and provincial/city officials to study the effect of political turnover on corporate investment in China. This paper finds that the turnover of both provincial party secretaries and city party secretaries inhibit corporate investment, while the turnover of governors and mayors have no effect on corporate investment. Investment irreversibility, not financial friction, is the mechanism through which local party secretaries' turnover reduces corporate investment. Moreover, ownership structure, the ultimate controller's hierarchy level, and the city's hierarchy level play moderating roles. The effects of provincial secretaries' turnover are more robust than those of city secretaries' turnover in additional tests and robustness checks.