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Political Turnover and the Stock Performance of SOEs in China

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  • Danli Wang
  • Terence Tai-Leung Chong

Abstract

This article analyzes the reasons behind the long-term underperformance of China’s stock market. We argue that the price growth of local state-owned enterprises (SOEs) is hindered by the control of state shares by local cadres who often sell the shares below market prices during their time in office. Our empirical analysis reveals that political turnover of the prefectural party secretary has a significantly negative impact on the selling of state-owned shares and the price growth of local state-owned enterprises, while there is no such impact on private enterprises and state-owned enterprises controlled by the central government.

Suggested Citation

  • Danli Wang & Terence Tai-Leung Chong, 2017. "Political Turnover and the Stock Performance of SOEs in China," Chinese Economy, Taylor & Francis Journals, vol. 50(1), pages 21-33, January.
    • Handle: RePEc:mes:chinec:v:50:y:2017:i:1:p:21-33
    DOI: 10.1080/10971475.2016.1211903
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    References listed on IDEAS

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    1. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 225-255, November.
    2. Owen A. Lamont & Richard H. Thaler, 2003. "Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 227-268, April.
    3. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    4. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    5. Kudamatsu, Masayuki & Jia, Ruixue & Seim, David, 2013. "Complementary Roles of Connections and Performance in Political Selection in China," CEPR Discussion Papers 9523, C.E.P.R. Discussion Papers.
    6. Shih, Victor & Adolph, Christopher & Liu, Mingxing, 2012. "Getting Ahead in the Communist Party: Explaining the Advancement of Central Committee Members in China," American Political Science Review, Cambridge University Press, vol. 106(1), pages 166-187, February.
    7. Fang Huang & Jun Su & Terence Tai-Leung Chong, 2008. "Testing for Structural Change in the Nontradable Share Reform of the Chinese Stock Market," Chinese Economy, Taylor & Francis Journals, vol. 41(2), pages 24-33, March.
    8. repec:bla:jfinan:v:58:y:2003:i:3:p:1113-1138 is not listed on IDEAS
    9. J. Michael Harrison & David M. Kreps, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(2), pages 323-336.
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    Cited by:

    1. Danqing Wang & Zhitao Zhu & Shuo Chen & Xiaowei Rose Luo, 2021. "Running out of steam? A political incentive perspective of FDI inflows in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(4), pages 692-717, June.

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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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