Xiangyu Shi， Tianyang Xi, Xiaobo Zhang, and Yifan Zhang
The collusion between firms and government officials is ubiquitous but hard to empirically assess. This paper studies collusion by tracing the pattern of inter-city investments after political turnovers. Exploring the feature of bureaucratic transfers in China and using a unique firm registry data, this paper documents a significant increase of new investments with a close tie to the moving leaders' previous jurisdiction. Further empirical investigations find evidence consistent with a collusion between leaders and firms: First, new registrations tying to moving leaders concentrate in high-renting sectors. Second, the firms tying to moving leaders have a higher survival rate provided that their patrons stayed in the same jurisdictions, but those firms are more likely to exit local markets once the patrons left. Thirdly, the connected firms tend to crowd out new entries and dampens innovation. And lastly, career-concerned motives seem to mitigate collusion.
Keywords: Political connection, corruption, bureaucratic transfer, investment, China