Can local policy uncertainty curtail corporate speculation on financial assets?

Using a hand-collected data set of city-level local official's turnover in China, we find that the average financial investments of listed non-financial firms decrease significantly in the spike of local political uncertainty, i.e., when upon the turnover of city head occurs. The decrease in financial investment still occurs upon the predicted timing of city heads' turnover. The effect is more prominent for firms with high financial distress risk and weaker corporate governance, i.e., those with higher speculative motives. Overall, this paper reveals that local political uncertainty discourages firms' speculative motives of investing in financial securities.