The Impact Of Local Official’s Turnover And Tenure On The Leverage Ratio Of Enterprises

After the outbreak of the international financial crisis in 2008,the central government formulated and implemented a 4 trillion stimulus plan to promote domestic economic growth.This plan led to the rapid expansion of China’s overall debt scale and increased risks in the market.With the rise of capital prices such as manpower and land,enterprises are increasingly sensitive to their leverage.Under such circumstances,the central leadership has attached great importance to "structural deleveraging" for many times,hoping to reduce the adverse effects of excessive leverage ratio.Besides,local government officials always play a significant role in local economic development,especially in our special political and economic environment.They promote different decisions to improve the allocation of resources and ensure the functioning of the market.However,the frequent turnover of government officials will have a huge impact on the operation of macro economy and the development of micro enterprises.It also makes the policy implementation become discontinuous and unstable.On this basis,scholars mostly use economic policy uncertainty index for analysis,or study the relationship between local official’s turnover and enterprise investment performance management in the existing studies,but few associates officials with corporate leverage.This paper makes use of the data of Shanghai and Shenzhen A-share listed companies from 2005 to 2019 and the data of local officials,to study the impact of the official’s turnover and tenure on the enterprise leverage ratio through theoretical and empirical analysis.Besides,this paper introduces the personal factors of officials and the characteristic factors of enterprises,to analyze the influence of these factors on the relationship between the official turnover and the enterprise leverage ratio.Finally,based on the current situation of economic transformation,this paper analyzes whether there are significant differences in the relationship between the turnover of officials and the enterprise leverage ratio in cities under different economic transformation conditions.The conclusions are as follows.Firstly,the enterprise leverage ratio decreases significantly in the year of turnover,and presents an inverted U-shaped feature with the increase of official tenure.Secondly,personal factors such as official’s age,education background and source,as well as enterprise characteristic factors such as ownership,operation status and loan cost,have significant impact on the relationship between official turnover and enterprise leverage ratio.Finally,the negative impact of official turnover on enterprise leverage ratio is lower in regions with higher levels of economic transformation.The paper also puts forward the corresponding policy recommendations based on the above research:the stability of policy implementation should be maintained;the selection,promotion and supervision mechanism of officials should be improved;local officials should adjust the decision flexibly according to the actual situation of enterprises;the government should accelerate the transformation of development mode and promote the reform of economic system.On the one hand,this paper complements the literature related to the uncertainty brought by official turnover and enterprise leverage ratio.The analysis that distinguishes the personal factors of officials and the characteristic factors of enterprises makes the results more targeted and helps to understand the logic of the change of enterprise leverage ratio.On the other hand,the research results have more practical significance by introducing economic transformation variables.The analysis of dividing the time interval according to the holding time of the 18th National Congress of the Communist Party of China also provides a certain theoretical support for restricting and supervising officials to exercise their power.