Observational analysis shows political turnover influences capital structure in regions with high intervention, indicating a need for political stability.
The study found that political turnover accelerated the SOA, supporting our proposed 'power vacuum hypothesis'. This positive correlation was particularly evident in regions with high levels of political intervention, heavy tax burdens, and widespread corruption, as well as in firms with limited political connections, minimal reliance on political resources, and reduced political contributions. Additionally, outgoing officials with longer tenures and newly appointed officials with offsite experience amplified this effect. Notably, mayoral turnover had a greater impact on the SOA than secretary turnover. Lastly, bank loans were crucial for adjusting capital structures when they deviated below target levels.
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Dong et al. (2025) studied this question.
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