Will Officials’ Turnover Affect Enterprises’ Financial Subsidies? An Empirical Research Based on Chinese Family Firms

Abstract

With administrative decentralization and fiscal decentralization, local officials are in control of many important resources such as administrative examination and approval, land acquisition, loan guarantees, and policy preferences. In fact, they have become the main executors of regional economic development and social order stability. However, as far as the personnel system of cadres in our country is concerned, the turnover of local officials is a normal state. In addition, because of the differences of personal experiences and individual characteristics of different officials, their policy preferences in the term of office also exist greater heterogeneity, which leads to the fact that the replacement of officials will affect the operation of enterprises in varying degrees. As a kind of free transfer payment provided by the government to the main body of micro-economic activities, the financial subsidy is also the embodiment of the interaction between the government and enterprises. However, there are few scholars analyze whether the turnover of local officials will affect the acquisition of financial subsidies of enterprises. Based on the sample data of family listed companies from 2007 to 2014, this paper examines the influence of officials turnover on financial subsidies of family firms from the perspective of the turnover of party secretaries of prefecture-level cities. The main conclusions are as follows: First, to some extent, the replacement of officials will break the original relationship between the government and enterprises. Compared with state-owned enterprises, family firms are more vulnerable to the impact of such external shocks, the most direct reflection of which is the reduction of government subsidies. Second, there is a potential assumption that family firms use political connections to gain resource advantages, so they are more vulnerable to the break-up of the relationship between the government and enterprises, as the turnover of officials will affect financial subsidies of enterprises. At present, there are two views on the political relationship: the view of efficiency” and the view of rent-seeking”. The view of efficiency” holds that seeking the political relationship is the best choice for high-quality enterprises when the institutional environment is poor; while the view of rent-seeking” holds that the political connection is a means of rent-seeking, which cannot be regarded as the standard of judging high-quality enterprises, nor is it conducive to the improvement of economic and social efficiency of enterprises. This study finds that when officials are replaced, financial subsidies of politically affiliated enterprises are more affected, which indicates that the turnover of officials affects the access of rent-seeking enterprises to financial subsidies, and in the process, the rent-seeking” view of the political connection has been verified. Third, in the regions where the system efficiency is more perfect, the influence of the replacement of officials on financial subsidies of enterprises is weakened. Finally, the further study of this paper finds that when officials are from other provinces and cities, the break of the interest alliance caused by the turnover of officials has a more significant impact on financial subsidies of family firms. In addition, when the performance of enterprises is poor, the influence of officials’ turnover and political connections on financial subsidies of enterprises is more significant. This study has a certain theoretical contribution and practical significance. From the perspective of theoretical contributions, this paper not only expands the research field of the impact of officials’ turnover on enterprises, but also enriches the existing research on financial subsidies, institutional governance and the relationship between government and enterprises. From the perspective of practical significance, this paper believes that at the present stage of economic transformation in China, it is suggested that the current government performance appraisal system should be adjusted to a certain extent, and GDP should no longer be used as a single assessment index. On the contrary, the adjustment of the regional economic structure, the upgrading of the industrial structure, and the ability of regional innovation are more included in the official performance system, so as to guide local officials to allocate limited government subsidies to enterprises with good development prospects, strong innovative capacity, in line with the direction of national strategic development. In addition, market reforms should be further deepened, and institutionalized government subsidy standards should be formed, so that financial subsidies can also form market allocations, thereby maximizing the effectiveness of financial subsidies.