Political turnover and corporate research and development: evidence from China

Abstract

This paper documents cycles in corporate research and development corresponding with the timing of political turnover. Utilising the data on local government officials and research and development activities at the firm level in China, firms’ intensity of research and development input is found to be negatively associated with a turnover in local political leaders. We investigate several potential explanations and find evidence supporting that political turnover reduces the incentives of firms to invest in research and development until the uncertainty is resolved.