Seminar Vol. 120

Title: Is There Cronyism? Evidence from Land Market and Corporate Political Cycles in China

Speaker: Chunyang Wang, Peking University

Time: December 7th, 2018 13:30–15:00

Venue: Conference Room 106B, Zhonghui Building (IESR, JNU College of Economics)

About the speaker:

Chunyang Wang is an Associate Professor at HSBC Business School, Peking University. He received PhD degree in Economics from the University of Minnesota in 2011. His main research interests are: macroeconomics and monetary economics, banking, financial crisis, macro-finance, financial regulation, financial econometrics and Chinese economy. Chuyang Wang's work has appeared in such journals as European Economic Review, China Economic Review and Annals of Economics and Finance.

Abstract:

Hedonic industrial land price was constant but other land prices rose around 6 times since 2004 in China. This paper measures the degree of industrial land subsidy to a company using the ratio of the market value of land in the neighborhood over the price at which the company purchased the land from the local government. Matching public listed company data with over 1 million land transaction data from 1998 to 2013 in China, we find that heavily subsidized companies exhibit starker political business cycles, in terms of higher investment rate in the preceding year of the expected turnover of local leaders. However, these companies’ investment efficiency decline in the political key year. We interpret these findings as evidence of cronyism, i.e., listed companies return the favor of land subsidy from local leaders since increased investment before turnovers can boost local GDP and enhance the leaders’ promotion likelihood. Further investigation shows that for cities with high career incentive leaders, such cronyism effect is stronger, and the same holds true for cities with low-institution quality.