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The dark side of political promotion incentives: Evidence from firm performance

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  • Bo, Xinru
  • Fan, Xiaomin (Michelle)
  • Kong, Aiguo

Abstract

This paper evaluates Chinese state-owned enterprises (SOEs) to examine the influence of the CEO political promotion incentive (PPI) on the long-term performance and performance volatility of their firm. Empirical tests demonstrate that CEO PPI is negatively correlated with long-term performance because CEOs favor investment over innovation to cater to the government. Moreover, CEO PPI is positively correlated with performance volatility because the rapid performance improvement adopted over a short period to achieve political promotion are usually followed by a subsequent decline. Further analyses suggest that foreign institutional investors play a key role in alleviating the negative impact of CEO PPI.

Suggested Citation

  • Bo, Xinru & Fan, Xiaomin (Michelle) & Kong, Aiguo, 2023. "The dark side of political promotion incentives: Evidence from firm performance," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005591
    DOI: 10.1016/j.frl.2022.103382
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    References listed on IDEAS

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    1. Yang, Gongyan & Yang, Yingqun & Tang, Tingfeng & Dai, Liyan, 2023. "Does China's aid boost firm performance in recipient countries?," Finance Research Letters, Elsevier, vol. 55(PB).

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