Political connections between politicians and businessmen are an especially important and sensitive topic in China at the current stage. In fact, even in Western countries where market economy is well developed, government officials also play an important role in the economic activities of firms. It is fair to say that politician-businessman relations are a common phenomenon all over the world. This research focuses on the economic consequence of state leaders’ visit to firms. What effects does state leaders visit have on the firms’ business activities and performance?
This thesis studies the behaviors and events of state leader visit to listed firms by: collecting data on the Shanghai Stock Exchange and the Shenzhen Stock Exchange listed firms visited by members of the Politburo Standing Committee during 2003-2012; conducting comparative analysis by sector and by region; selecting appropriate explanatory variables and explained variables and creating effective models; conducting descriptive statistical analysis; and conducting empirical analysis using the classic two-stage treatment effect model.
Firms visited by leaders receive government subsidy and reduction of tax burden, which enhance firm performance; firms visited by leaders over invest, and although profit manipulation by senior managers at state-owned firms was not found, profit manipulation by senior managers at private-sector firms was found.
This thesis incorporates the policy-based guidance from the state (macro level) and the business operations of firms (micro level) in its research question, and studies both the positive and negative material consequences of state leader visit on over-investment and profit manipulation by the visited firms, on the implementation of the state’s fiscal and taxation policies, and on firm performance.
Aside from enjoying the benefit of state leader visit, business managers must be careful in the negative consequence of the glorious event. They must realize the impact of the event from both short term and long term of view, and accordingly take different actions to maximize the stakeholder interests.
State leader visit can bring the visited firms tax benefits, but it is still uncertain how significant this effect is and whether it is sustainable, which requires further analysis.
State Leader Visit; Listed firms; Economic consequence; Firm Performance; China Business