Political Pressure And Corporate Behavior

China has become one of the fastest growing countries in the world,in the three decades after its reform and opening up,China's economy maintained its rapid growth momentum with annual GDP growth of 10%.Not only has it successfully dealt with several financial crisis,it has also become the second largest economy in the world.Behind the rapid economic development,more and more scholars are aware of the important role played by the political factors in China's specific national conditions.Due to China's government-led model of market economy,the high concentration of political rights has enabled Chinese local governments and officials to play a significant role in promoting economic restructuring,attracting investment,developing the private economy,improving local infrastructure and strengthening regional economic cooperation.Therefore,in China,as an important institutional power,political factors have even greater influence on the capital market and operation of micro-enterprises than those in the mature western market economy.From a macro point of view,political system reform,political party changes,geopolitics,corruption and anti-corruption events have become sources of political risk in countries and markets.And fron the micro point of view,political resources as one of the important resources of enterprises,the loss of power,death,replacement and promotion of politicians or government officials will also profoundly affect the capital and financial decision-making behavior of micro-enterprises.It is precisely because of the important status where the political factors located in China's capital markets and micro-enterprises,based on the actual situation of listed companies in China and the hand-collected unique date,this paper attemps to analyze the peculiar systems and events under specific conditions in our country,such as the anti-corruption incident of the Central Inspection Campaign and the promotion of local officoals in China,to discuss the economic consequences of the political pressure on China's micro-enterprises under the perspective of external supervision and internal incentives in depth.At present,the research on political incentives is still in the development stage,and the relevant research is still at the forefront and fragmented level.Therefore,based on the importance of this issue and the related research still lacks systematic consideration,the paper examines the theretical and empirical analysis of the impact of political pressure on the behavior of enterprises from the two perspectives of external supervision and internal incentive,it is undoubtedly of great significance to provide empirical evidence to“seize the overwhelming victory of the anti-corruption struggle”and to understand deeply the political logic of our country's corporate behavior in economic transition.On the one hand,from the perspective of external political supervision,the first and the second parts of the empirical part of the paper attempt to focus on the small specific scene of anti-corruption campaign conducted by the Central Inspection Group based on the background of the anti-corruption after 18^th National Congress of the People's Republic of China,to examine the impact of external political pressure on the shareholder value of the stock market and the financial performance of the micro-level of the enterprise.At the same time,we analyze the possible heterogeneity of anti-corruption campaign based on the difference between Chinese enterprises and the market environment,and obtain the basic conclusions about the impact of anti-corruption on corporate behavior.The results confirm the active role of the current Central Inspection policy on the capital market,the investors expect this Central Inspection Campaign to be a credible and strong anti-corruption operation,which will contribute to eliminate the corrupt environment and eventually boost the companies'value.Moreover,the short-term enhancement of the shareholder value by the Central Inspection Campaign is more significant in the state-owned enterprises,the more marketized regions,the non-politically connected enterprises and the enterprises with lower entertainment costs.The investigation on the financial performance of enterprises shows that the Central Inspection Campaign contributes to improving the performance of central state-owned enterprises?SOEs?;however,it would in turn hinder the performance of the non-state-owned enterprises?non-SOEs?,which demonstrates corruption act as“sand”in central SOEs while“greasing-wheel”in non-SOEs.On the other hand,the third and the fourth parts of the empirical part of the paper start from the perspective of internal incentives,select the promotion of local officals as an unique event,empirically examine the impact of incentives of political promotion on corporate innovation activities and real earnings management behavior.We find that the incentives created by the impending promotion of local politicians will reduce the firms'innovation quantity and quality.And the negative effect is stronger if the firm is local state-owned,or if the city's marketization degree is lower,or if the firm has political connection.After a further examination,we find the firm would establish the political relationship by charitable donations rather than rent-seeking,consequently to further squeeze out innovation.In addition,the incentives of political promotion will also prompt enterprises to conduct real earnings management activities.Considering the cost of real earnings management,we find that this short-sighted phenomenon is more prominent in the industry leading enterprises and those with less financial risk.The existence of institutional investors helps curb the firms'real earnings management activities before the impending promotion of local politicians.In general,due to the over-emphasis on economic performance indicators,the promotion tournamnets by local officials will cause certain short-sighted and distorted effects on the enterprises'actual business activities.To sum up,the research of this paper has a certain exploration,the main features include:comprehensively using methods such as the theoretical analysis,quantitative analysis,case analysis and literature analysis,systematically combing the possible positive and negative influence channels of political factors on enterprises.We base on China's specific political background,the anti-corruption policy of the Central Inspection Campaign and the promotion tournamnets by local officials,to empirically identify how these two events affect corporate behavior,containing the enterprises'stock market performance,financial performance,innovation output and real earnings management activities.Over the past three decades,China's economy has undergone a booming period,however which along with the“mystery of China's growth”,in this paper,by looking for the Central Inspection Campaign as the exogenous event,we better identify the net effect of anti-corruption on the different enterprises in China.And the unque relationship between government and enterprises derived from the promotion tournamnets also gives“short-sightedness”at the political system level for the inefficiency of enterprise innovation and earnings manipulation in China.The conclusion of this paper reveals the political logic of Chinese enterprises in innovation and earnings management during economic transition,on the one hand,local government officials strongly motivated local enterprises to“contribute”to their political promotion in the pre-promtion stage;on the other hand,the relationship between government and enterprises and the rent-seeking of power generated by political incentives also make the local enterprises have a strong desire to meet the political needs of promoted officials,thus affecting the firms'innovation and real earnings management activities.