State Leaders’ Onsite Visit

Abstract

Political visit is an under-researched way in which governments influence firms and markets. Chinese state leaders (i.e. Politburo Standing Committee Members) often visit firms during their domestic inspection tours. This study shows that representativeness, political connections and alignment with government goals are the three important criteria for choosing firms to visit. We document positive market reactions contingent on the political power of different administrations and government officials. Moreover, the results show that visits are associated with higher operating performance. These positive impacts are also contingent on certain firm characteristics and the levels of institutional development. Finally, we find that political visit can be substituted as a source of legitimacy for CSR activities and increases the social attention for the firms, which reduces firms’ incentives to donate while motivates firms’ unethical behaviors in order to meet social expectations.