Move to Success? Headquarters Relocation, Political Favoritism, and Corporate Performance

61 Pages Posted: 10 Jun 2021

See all articles by Shuo Chen

Shuo Chen

Fudan University - Department of Economics

Xun Yan

World Bank

Bo Yang

University of Southern California - Management and Organization Department

Date Written: June 8, 2021

Abstract

This study documents an unexplored corporate rent-seeking phenomenon in non-representative
regimes—relocating headquarters (HQ) to the political center. Focusing on China, we find that
firms that relocate their HQs to Beijing (the political center) enjoy increased political favors, but
those that move to Shanghai or Shenzhen (the country's two main economic centers) do not.
Although both groups of movers experience improved profitability, their sustainable growth
paths diverge after relocating. Firm productivity and innovation worsen after relocating to
Beijing, but improve after moving to Shanghai or Shenzhen. Overall, these findings support the
argument that political favoritism benefits firms' profitability but impairs their productivity and
innovation.

Keywords: Headquarters relocation, Political favoritism, Corporate performance

JEL Classification: D22, G38, L25, R30

Suggested Citation

Chen, Shuo and Yan, Xun and Yang, Bo, Move to Success? Headquarters Relocation, Political Favoritism, and Corporate Performance (June 8, 2021). Journal of Corporate Finance, Vol. 64, No. 101698, 2020, Available at SSRN: https://ssrn.com/abstract=3862756

Shuo Chen

Fudan University - Department of Economics ( email )

600 GuoQuan Road
Yangpu District
Shanghai, 200433
China

Xun Yan

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Bo Yang (Contact Author)

University of Southern California - Management and Organization Department ( email )

United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
22
Abstract Views
156
PlumX Metrics