Political Turnover Research Articles

I’m a Survivor: Political Dynamics in Bureaucratic Elites’ Partisan Identification

This article challenges the common assumption that the partisan identification of bureaucratic elites is fixed over time. Building on principal-agent and organization theory, we hypothesize that bureaucratic elites may respond to political turnover by adjusting their partisan identification toward that of their (new) elected principals. We test this prediction using data from the American State Administrators Project (ASAP) over the 1964–2008 period, which allows us to study the same US agency leaders (N=951 individuals) before and after partisan shifts in their agency’s elected principals. We find significant evidence that agency leaders remaining in office following a shift in the party in power on average reorient their partisan identity in response to such turnover events. These adjustments are stronger for agency leaders directly appointed by, or in more frequent contact with, their elected principals. Our results suggest a malleability of partisanship seldom attributed to bureaucratic elites in public and academic discourse.

Political uncertainty, bank loans, and corporate behavior: New investigation with machine learning

This paper investigates how uncertain term length, a novel source of political uncertainty, affects the behaviors of banks and firms using a machine-learning approach. China's local authorities do not have a fixed term, creating an ideal environment for studying how economic agents react to their perception of political uncertainty without an actual political turnover. We implement a machine-learning method to predict the term length of city leaders by observing others with similar backgrounds. Combining this new measurement of political uncertainty and bank- and firm-level data, we find an inverted U-shaped relationship between city leaders' predicted remaining term length and bank loans, corporate liabilities, and investment, which matches the change of political uncertainty over the term. We also record the potential adverse consequences of the politically motivated loan and investment expansion, such as a loss of corporate efficiency and a disruption in market order.

Political Turnover and Corporate Covert Donations

Political Turnover and Corporate Covert Donations

Does Political Turnover Affect Enterprise Environmental Protection Investment? Evidence from China

Does Political Turnover Affect Enterprise Environmental Protection Investment? Evidence from China

The politics of corporate social responsibility disclosure: Evidence from China

While businesses fluctuate with politics, firms try to find ways to deal with uncertainty. We investigate how political incentives shape corporate social responsibility (CSR) reporting activities using the setting of China. Based on a sample of non-mandatory CSR disclosure firms, we find that firms experiencing political turnover are more inclined to issue CSR reports voluntarily, supporting the political connection demand hypothesis rather than the political cost hypothesis. Such effects are more prominent when the political turnover is unexpected and successors are non-locals. Meanwhile, non-SOEs, not politically connected enterprises, and firms located in low government efficiency areas are more likely to issue CSR reports. Further analysis shows that these firms disclosed CSR information experiencing political turnover fail to ensure the reporting quality but can obtain resources in the future. Overall, we highlight that CSR disclosure is a way for firms to establish political connections with politicians. Our study sheds light on the determinants of voluntary CSR disclosure from a political perspective.

The effect of regime change on entrepreneurship: A real options approach with evidence from US gubernatorial elections

Although political turnover is said to be a healthy component of the business environment, the literature is equivocal about the effects of regime change on early-stage entrepreneurial activity. I present incumbent displacement—the electoral defeat of an incumbent political party's candidate—as a source of regime change, and I analyze how this affects business formation through the lens of real options theory. I test my theory using US gubernatorial elections from 2004 to 2022, leveraging a Regression Discontinuity design to compare changes in business formation trends following elections where a challenger party candidate wins or loses by a close margin. I find that regime change reduces venture creation activity for growth-oriented ventures specifically. I also find evidence of a partial rebound in subsequent months—suggestive that some entrepreneurs delay entry while others permanently abandon their ventures.

Persistence in power of long-lived parties

This paper presents a dynamic model of electoral competition in which parties are long-lived organizations. In each period, the incumbent chooses between two policies. The competitive policy yields a greater reelection probability, but absent electoral effects, the incumbent would prefer the accommodative policy. The analysis reveals that parties’ incentives to win reelection feed on themselves via a dynamic strategic complementarity effect: the incumbent’s incentives to prioritize reelection today increase if it expects its rival will prioritize reelection once in power. This complementarity effect is more relevant when competitiveness harms the opposition electorally- and policy-wise. As a result of this effect, checks and balances disincentivize parties’ competitiveness not only under divided governments but also when government is unified. Lastly, competitiveness is disincentivized by political turnover, party discipline, and parties’ impatience. The model applies both to settings of “virtuous” and “perverse” accountability, in which the competitive policy is socially better or worse, respectively.

Political Turnover and Public Health Provision in Brazilian Municipalities

Abstract The objective of this work is to estimate the effects of political turnover on municipal health indicators. For this purpose, we used a regression discontinuity design applied to a pool of data on close municipal elections that occurred in 2008 and 2012. The outcome variables tested were municipal health indicators observed 1 and 3 years after the elections. We assume that the change of parties in the leadership of the municipal executive power alters the managers and public health policies and, therefore, affects the indicators of this sector. Our results indicate that health indicators linked to administrative issues appeared to benefit from political turnover in the period immediately after the elections (1 year). These results were corroborated by our additional estimates (robustness). We highlight that the number of health workers and coverage of primary care remained better 3 years after the elections in municipalities that suffered political turnover, indicating that this improvement resulting from the change in management may not be transient. Finally, through averaging tests, we found that in municipalities where the incumbent lost the election and there was a turnover, health managers were more qualified, and there was greater creation of basic health units.

The Art of Adversity Thinking: Political Turnover and Firm Innovation

By integrating the political strategy literature and research on innovation, this article develops a theoretical framework and empirically tests how and why political turnover affects firm innovation. Drawing on the attention-based view, we argue that firms also use innovation as an attention-catching strategy to seek opportunities in uncertain environments. Furthermore, we highlight how the uncertainty rooted in political turnover varies by identifying two contingent values: 1) politicians’ career concerns and 2) firms’ political hierarchy. Using a longitudinal data set of industrial enterprises in the context of China, we find that there is a significant positive relationship between the replacement of government leaders at prefectural city level and firm innovation. Moreover, this positive relationship is strengthened when new government leaders are promoted locally, but is less salient if the politicians are at an early stage of their career or firms are affiliated with higher hierarchies. Our research expands the literature on uncertainty by highlighting the role of political agents, contributes to the theory of the attention-based view by treating attention from key external stakeholders as a key resource, and advances the understanding of how firms strategically respond to political shocks in China.

Political Turnover and Audit Opinion: Evidence from China

SUMMARY In this study, we examine how political turnover influences auditor reporting behavior by focusing on the turnover of Chinese provincial governors. We predict that the Big 10 audit firms tend to report more conservatively to counter the uncertainties induced by governor turnover, whereas local small audit firms would report more aggressively to help governors conceal local negative information. Using 11,405 audits conducted in the Chinese economy, we find that the Big 10 audit firms report more Modified Audit Opinions (MAOs), whereas local small audit firms render more clean opinions in the pre-turnover than other nonturnover years. We also find that: (1) audit firms readjust their reporting behavior after governor turnover ends; and (2) governor turnover can be well anticipated one year ahead. Overall, our study suggests that political turnover wields a significant influence on auditor reporting behavior and this influence further varies across audit firms. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D72; M42; M38; M48.

Political turnover and corporate credit spread: Evidence from China

Using hand-collected data on changes of government officials in 288 Chinese cities from 2002 to 2018, we examine how political turnover affects corporate credit spread in China. We find that political turnover leads to an increase in corporate credit spread. This result is robust after using PSM method and Heckman method to control the endogeneity concerns. The effect is more significant in bonds close to maturity, SOEs and Local SOEs, areas with officials not be promoted and unexpected, and during a market boom. Moreover, we examine whether this effect is a reasonable choice for creditors. We find that political turnover can increase both the default probability and the financial risk of companies.

The politics of redistribution and sovereign default

This paper studies how distributional and electoral concerns shape sovereign default incentives within a quantitative model of sovereign debt with heterogeneous agents and non-linear income taxation. The small open economy is characterized by a two-party system in which the left-wing party has a larger preference for redistribution than the right-wing party. Political turnover is the endogenous outcome of the electoral process. Fiscal policy faces a tradeoff: On the one hand, the government has incentives to finance its spending via external debt to avoid distortionary income taxation. On the other hand, the accumulation of external debt raises the cost of borrowing. Quantitative findings suggest that the left-wing party implements a more progressive income tax, is more prone to default, and has a lower electoral support than the right-wing party due to worse borrowing conditions and the distortionary effects of income taxation. In equilibrium, electoral uncertainty raises sovereign default risk.

Nature or nurture? Agency life‐cycles as a function of institutional legacy, political environment, and organizational hardwiring

AbstractA growing body of literature attempts to explain the life‐cycles of public sector organizations. Of particular interest have been the form and incidence of their birth and termination, and connecting these events to such variables as legal status and political ideology. Less attention has been given to the effect of intermediary life‐cycle events, the tasks performed by agencies, and their policy domains. This study builds on existing fixed characteristics (nature) and dynamic environmental (nurture) approaches and uniquely supplements them with a new institutional legacy paradigm that examines how previous organizational reforms influence future reform. Moreover, we advance existing studies by providing more comprehensive tests of the role that task type and policy domain play. Finally, we retest “classic” nature and nurture variables, namely, political turnover and legal form. Results suggest that nature and nurture provide important pieces of the organizational life‐cycle puzzle and that nurture comprises both external and intra‐organizational dynamics.

Winning and losing the resource lottery: Governance after uncertain oil discoveries

Natural resource discoveries are often followed by delays and uncertain production outcomes, creating challenges for governments that anticipate resource revenues. I leverage exogenous subnational variation in offshore oil discoveries in Brazil to identify dynamic effects of discovery news and revenue shocks on local public finances, public goods provision, and politics. Municipalities where discoveries are realized enjoy significant growth in revenues and spending, but fail to improve public goods provision or stimulate economic activity. Municipalities that experience discovery announcements but never receive windfalls suffer long-term declines in revenues, investment, and public goods provision relative to never-treated controls. I show that electoral responses underlie these dynamics: discovery announcements draw less-educated candidates into local politics, and shortfalls between anticipated and realized oil revenues increase political turnover. Findings highlight discovery uncertainty as a fundamental resource governance challenge, and reveal mismanagement of windfalls and adjustment costs after disappointment as two faces of the Resource Curse.

How does industry-university-research collaborative innovation affect energy intensity in China: a novel explanation based on political turnover

As a form of integrating knowledge resources and promoting technological innovation, industry-university-research (IUR) collaborative innovation is thought to influence energy intensity reduction. However, the boundary conditions of IUR collaborative innovation affecting energy intensity have yet to be discussed. To fill this gap, we explore the impact of IUR collaborative innovation on energy intensity and the role of political turnover in its influencing mechanism, using a panel dataset of 30 Chinese provinces from 2010 to 2018. IUR collaborative innovation inhibits energy intensity, but this effect is only significant in the eastern region. Interestingly, political turnover positively moderates the inhibitory effect of IUR collaborative innovation on energy intensity. However, this moderating effect is only significant in the central and western regions. Moreover, the robustness tests provide abundant evidence to support the above findings. Finally, some policy implications are suggested.

New officials, fresh outlooks on policy uncertainty: Leadership turnover in environmental protection bureaus and additional corporate environmental reporting

Whereas prior research has explored the corporate environmental reporting (CER) effects of policy uncertainty caused by political turnover, little attention has been paid to the impact of environmental protection bureaus (EPBs). The recent top-down environmental management institutional reform has substantially enhanced the discretion and authority of EPBs and led to EPB heads exerting increasing effects on environmental enforcement in Chinese localities. Enlightened by this institutional change, in this research we investigate the degree to which policy uncertainty caused by leadership turnover in EPBs changes the level of CER. The results show that the turnover of an EPB head has increasingly caused additional CER activity and that this impact is more pronounced in politically embedded firms and in those whose affiliated cities are under intense environmental pressure. Further analyses reveal that corporations exhibit better CER performance if former EPB heads are promoted to superior political levels or if newly appointed EPB heads have not been promoted locally. The findings suggest that environmental management reform has led CER practices in China to be increasingly related to local EPBs, and the turnover of EPB heads could have strong policy implications, which sheds new light on the conventional policy uncertainty hypothesis.

Political turnover and firm innovation in China: The moderating role of innovation and entrepreneurship environment

The empirical work in this paper is based on an analysis of the data of China's listed companies, the innovation and entrepreneurship index, and local official turnover data at the city level. It shows that policy uncertainty caused by local political turnover in local governments significantly reduces firm innovation. However, improvement in local innovation and entrepreneurship environment can lessen this negative impact. This moderating effect is especially relevant among non-high-tech or financially constrained firms. The robustness of these findings is checked through a series of alternative analyses such as dealing with endogeneity, optional measures of the dependent variable and subsamples.

Regulations, politics, and firm green innovation

We examine impacts of environmental regulations and political incentives on firms’ green innovation. By exploiting a natural experiment on reduction of sulfur dioxide (SO2) emissions in China, we show that the environmental regulation significantly enhances firms’ green innovations. For 1% increase in provincial SO2 reduction targets, there is average 1.77% (2.67%) increase in green patent amount (quality). A plausible mechanism driving our findings is that target-based performance evaluation in political promotion may properly motivate local bureaucrats to exert pressures on firms to implement environmentally friendly innovations. However, local bureaucrats’ political turnover and short-term pressures of economic growth negatively moderate our findings. Our findings are more pronounced to state-owned, non-financing constrained firms and firms under eastern provinces or SO2-filled industries.

The effect of political turnover on corporate ESG performance: Evidence from China.

This paper aims to investigate the effect of political turnover on corporate ESG performance in China. By analyzing data from Chinese A-share-listed companies between 2010 and 2020, we have discovered that changes in the municipal party committee secretary or the mayor of the prefecture-level city where a firm is located have a detrimental effect on corporate ESG performance. Compared with the change of the party committee, the change of mayor has a more pronounced negative impact on ESG performance. The reason behind this negative effect is primarily attributed to policy uncertainty, which leads to a decrease in governmental subsidies and an increase in ineffective under-investment by companies, consequently resulting in decreased corporate ESG performance. Furthermore, we have also observed that the adverse influence of political turnover on corporate ESG performance is relatively mitigated in SOEs, politically connected firms, and tertiary industries. These findings contribute to a deeper understanding of the relationship between political uncertainty and corporate behavior, particularly in emerging markets.

Political Turnover Negatively Affects the Quality of Public Services: A Replication

The politically motivated replacement in local governments is a pervasive fact in our modern democracies. Whether it has causal effects on the quality of public services, such as education, is a critical question and yet understudied. This paper uses a regression discontinuity design (RDD) for close elections to replicate Akthari, Moreira and Trucco (2022) who find negative effects on the quality of public education in Brazil (.05-.08 standard deviations of lower test scores). I first reproduce these main results, finding minor computational differences that have no effect on the conclusions. I also show that the estimates for Brazil are in general robust to different specifications following Brodeur, Cook and Heyes (2020). Finally, I implement the same RDD framework now applied to Chilean administrative records to find null effects on test scores. Taken together, these results suggest that political turnover has weakly negative effects on service quality.