Corruption And Non-Local Investment

Prior literature tended to explore the motivations of firms' non-local investments from the characteristics of investment destinations.Meanwhile prior literature generally focused on the foreign investments conducted by huge transnational corporations.However,this paper concentrates on the area where the investor located and explores why Chinese firms invest in other areas of China.Using geographic information of Chinese listed firms and their subordinate company during 2008-2014 and focusing on prefecture level districts,this paper examines the relation between the corruption behavior of local senior leaders and the intensity of listed firms' non-local investment.The empirical results indicate that if the political leader in one area ends with a downfall due to corruption,local firms tend to increase their investment in other areas during the leader' administration.Further studies show that such increase is more pronounced for non-SOE and local SOE;such increase is also more pronounced for non-SOE located in provinces with higher marketization level.Robust test shows that our result is steady if the firms located in Beijing,Shanghai,Tianjin and Chongqing are excluded or the measures of non-local investment and marketization level are adjusted.This study makes several contributions.First,this paper identifies a motivation for firms' non-local investment.Second,this study is related to a growing literature that documents the economic consequence of politics.Finally,since this paper focuses on prefecture level districts,the positive relation between corruption and non-local investment is clearer in this study than prior studies.