Firms and Local Governments: Relationship Building during Political Turnovers

Abstract We study how firms build relations with local governments in emerging markets without established rules of political lobbying. document that following a turnover the Party Secretary or mayor city China, (especially privately owned enterprises, POEs hereafter) headquartered significantly increase their “perk spending,” for example, expenses travel and entertainment among others. Both instrumental-variable-based results heterogeneity analysis are consistent interpretation perk spending is used to governments. In addition, we find tends be followed by changes Chairmen CEOs state-owned enterprises controlled government. also discuss rule out several alternative explanations above findings.