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Regional Political Promotion and Aggregate Accounting Profitability

We examine the association between regional political promotions and accounting profitability of local listed firms in China. We collect the turnover outcome of outgoing mayors in prefectures from 2008 to 2017 and match their turnover outcomes (promotion, semi-retirement, layoff, transfer) with accounting profitability of local listed firms. We find that only in economically less-developed prefectures, political promotion is associated with accounting profitability. In addition, provinces prefer to promote younger mayors and the promotion decisions are made shortly after mayors start their office terms. Provinces are also inclined to promote mayors to other prefectures within the same province, if local listed firms have strong accounting performance; otherwise, they promote mayors locally. These findings suggest that regional political promotion policies serve a dual role in the interaction between firms and politicians: politicians who support the regional economy by stimulating local firms’ profitability are rewarded with promotions, but this happens through non-local promotions to severe the ties between the outgoing mayor and the local firms to minimize corruption risk. Our findings demonstrate that prior studies overstate the power of future political promotion in incentivizing regional politicians to intervene in the accounting performance of local listed firms