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Fixed investment or financial assets investment: Evidence from political uncertainty in China

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  • Chengxue Yao
  • Fan Jiang
  • Liang Guo

Abstract

Using a comprehensive dataset of listed firms and detailed turnover data on top provincial leaders in China, we explore how political uncertainty affects a firm's portfolio choice. During political turnover, a firm decreases its fixed investment and increases its financial asset investment, but the promotional effect of political turnover on the financial asset investment of politically dependent enterprises (PDEs) is not obvious. We explain this finding through the mediating effect of stock price informativeness and degree of political dependence. Our results suggest that non‐PDEs rely on market information to make investment decisions, whereas PDEs are also affected by political resource information.

Suggested Citation

  • Chengxue Yao & Fan Jiang & Liang Guo, 2023. "Fixed investment or financial assets investment: Evidence from political uncertainty in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 427-450, March.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:1:p:427-450
    DOI: 10.1111/acfi.13039
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    Cited by:

    1. Wei Yu & Jianjun Jia & Ying Zheng, 2023. "Political uncertainty and corporate working capital in China," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 927-966, October.

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