Returning the Favor : Official Consumption and Government–Company Reciprocity

Official behavior is a vital factor affecting the development of companies in developing countries. This paper explores whether the government-company reciprocity exists in transitional countries. We match the unique data of the “three public funds” collected manually at the prefecture-level cities with the data of listed companies in the jurisdiction, and empirically analyze the government-company reciprocity mechanism behind the consumption of local government officials in China. The research shows that there is a trade-off relationship between local official consumption and the business entertainment expenses of companies, which is manifested in the transfer of the burden of official consumptions to companies. This transfer effect mainly exists in private companies, regions with non-diverse dialects and regions where the official’s household registration is inconsistent with the office place. The results also reveal that companies having paid for the consumption for local officials have received more subsidies and credit support from them, but such benefits have not facilitated the development of companies. However, this reciprocity has not promoted the development of the company. It not only burdens the company, but also wastes government resources and ultimately causes the loss of social welfare. Our research provides beneficial references for transitional countries to improve the business environment and reduce potential economic and social risks brought about by rent-seeking corruption