Career Incentives of Political Leaders and Corporate Operational Efficiency

Abstract

Theoretical and empirical evidence point to the ability of political leaders to manipulate economic policies and leverage local firms to elevate their political careers. Despite this, there is limited understanding of how these career incentives impact the operational dynamics of the firms involved. This empirical study delves into this gap, revealing that city leaders with fewer promotional incentives are more inclined to mobilize state-owned enterprises (SOEs) within their jurisdiction to pursue sustainable development, as indicated by heightened corporate operational efficiency. Our analysis further indicates that the career prospects of city leaders significantly influence the operational efficiency of SOEs by driving a shift in focus from rapid growth to sustainable development and firms’ adoption of disruptive technologies. We posit that this increase in operational efficiency not only benefits the SOEs but also generates unique value for stakeholders, resulting in elevated market capitalization and reduced stock price crash risk. Our findings carry direct relevance to the ongoing discourse on political incentives and contribute to operations management research, shedding light on the intricate ways in which the political environment can impact the operational performance of firms.