Political Visits and Firm Value: Evidence from central leaders’ local tours in China

Author Name ITO Asei (Faculty Fellow, RIETI) / LIM Jaehwan (Aoyama Gakuin University) / ZHANG Hongyong (Senior Fellow, RIETI)
Creation Date/NO. July 2023 23-E-050
Research Project Studies on Transformations of International Systems and their Impact on Japan's Mid- & Long-term Competitiveness
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This study investigates how Chinese central leaders choose firms to visit and how these visits affect the firm value and performance of the companies visited. We compile a list of visits made by General Secretary Xi Jinping and Premier Li Keqiang to Chinese listed companies from 2012 to 2022. Together with an event list for the Hu Jintao period, we apply an event study to estimate the determinants of firm selection and the short- and long-term effects of these visits on firm stock price and performance. The results reveal that political visits generated positive cumulative abnormal returns of 1.26%–5.97% for visited companies, depending on the individual leader. The findings also indicate that the visiting effects are qualitatively different among two administrations. Moreover, the visits made during the second term of the Xi administration increased cumulative abnormal returns prior to the visit, implying the possibility of suspicious pre-event trading due to information leaks. Regarding long-term effects, we find positive impacts on sales and bank loans of private firms. Results suggest while the business environments surrounding the Chinese companies have institutionalized, the value of political connections has not been diminished, but the way in which their effects manifest has been transformed.