“Moving Umbrella”: Bureaucratic transfers and the comovement of interregional investments in China

This paper studies the pattern of interregional investment after bureaucratic transfers across Chinese cities. Using the administrative records of business registration, we find that the transfer of a local leader between prefecture cities is associated with about 3% increase in interregional investment along the direction of transfer. The comoving firms purchase larger parcels of land and at lower prices. They also exhibit a higher likelihood of exiting when the patrons leave the office. Comoving interregional investment does not increase the probability of promotion for transferred leaders, and yet expose them to a higher risk of anticorruption prosecution. The findings highlight the importance of personal connection between firms and bureaucrats in shaping the pattern of interregional investment.