Official Visits and Investment and Financing Term Mismatch of Enterprises

Abstract

Compared with Western developed countries, China’s government officials often visit on site. Especially, when involving Central Government officials, the news is commonly placed conspicuously on the enterprise’s home page and even made into rolling news to attract public attention. Since 2008, the pressure on China’s economic growth has been increasing, and a concomitant phenomenon is that officials visit enterprises more frequently. We have observed that many industries with excess capacity and failed enterprises have been the focus of government officials’ visits. This leads us to wonder whether the excess capacity and subsequent high leverage caused by debt-backed investments are related to official visits. If so, in the current economic downturn, will more frequent visits by government officials to enterprises spawn a new batch of overcapacity industries and highly indebted enterprises? More importantly, with excess capacity, there are not only high liabilities, but also the term mismatch of short-term liabilities to support long-term investment. The risk caused by term mismatch has increasingly become the source of all kinds of systemic financial risks in China. In addition, we need to answer what the nature of official visits is and whether the possible reasons for the impact of official visits on enterprises are the incentives for officials’ achievements or the overconfidence of management. However, there is very little literature on the issue of term mismatch in China, and the systematic research on the phenomenon of official visits to enterprises is also very limited. Based on the data of official visits to listed companies collected manually from 2006 to 2012, this paper investigates the phenomenon of official visits and their impact on the term mismatch of enterprises by using PSM and DID methods. The results show that official visits significantly increase the level of investment and the degree of term mismatch of the enterprises interviewed, especially state-owned enterprises; then it is found that this effect is positively correlated with the pressure of regional GDP growth, but not with the tendency of management overconfidence, indicating that the mechanism of official visits affecting enterprises is the performance incentive of officials rather than the overconfidence of management caused by them. The investment incurred by current official visits are inefficient and further exacerbate term mismatch in the future. The findings of this paper show that officials’ visits to enterprises reflect that officials, out of their political achievements and promotion demands, are willing to stimulate enterprises to invest inefficiently in radical strategies with mismatched deadlines in order to improve GDP performance in a short period of time. The contributions and significance of this paper are as follows: Firstly, this paper attempts to discuss the nature of official visits and their impact on enterprises from the perspective of the government, rather than continuing the existing literature on the role of political links from the perspective of enterprises, which provides a new perspective for understanding the motives and effects of official governance in China. Secondly, the existing literature is basically a separate study of the government. From the perspective of investment and financing term mismatch, this paper combines the two to study the impact of enterprise investment and financing, which is helpful to fully understand the financing mode and risk of enterprise investment supported by the government. Thirdly, the research on the term structure of debt is very rich, but there are few discussions on the term mismatch caused by the mismatch between term structure and investment term. On the basis of the degree of term mismatch in quantitative investment and financing, this paper studies the impact of official visits on term mismatch in enterprises, which helps to clarify the common phenomenon of term mismatch in Chinese enterprises from the institutional level.