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The effects of local government leadership turnover on entrepreneurial behavior

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  • Dong, Zhiqiang
  • Wang, Xiaobing
  • Zhang, Tianhua
  • Zhong, Yuejun

Abstract

The behavior of entrepreneurs is significantly affected by the rules of the game and the behaviors of government officials, because they can affect the relative payoffs to different entrepreneurial activities. Based on a representative survey data of private firms and the information of city government officials in China, this paper shows that the change of key local government officials affects the time allocation of the entrepreneurs, and subsequently the performance of firms. In order to maintain and develop the business-government relationship, entrepreneurs have to allocate less time on productive activities and more time on non-productive activities. This effect is particularly large if 1) entrepreneurs do not have political connections, 2) new officials lack local working experience, 3) private firms belong to special industries, 4) private firms have large number of employees. This paper provides micro-level evidence to Baumol's entrepreneurship allocation theory and a mechanism to account for the observed negative effect of local government leadership turnover on local economic growth in China.

Suggested Citation

  • Dong, Zhiqiang & Wang, Xiaobing & Zhang, Tianhua & Zhong, Yuejun, 2022. "The effects of local government leadership turnover on entrepreneurial behavior," China Economic Review, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:chieco:v:71:y:2022:i:c:s1043951x21001450
    DOI: 10.1016/j.chieco.2021.101727
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    More about this item

    Keywords

    Government leaders turnover; Government-business relationship; Entrepreneurship; Time allocation;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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