Abstract: The herding behavior of corporate investment decisions is prevalent especially in transition economies. What role does financial expenditure play in the herding behavior of corporate investment decisions? The fiscal decentralization reform has given the local government a certain degree of freedom in financial expenditure, which provides an opportunity to test the above problems. The study depicts the investment comovement in each province based on the investment data of Chinese listed firms from 2000 to 2015, and explores whether or not the herding behavior is affected by the level of local government's financial expenditure. The study documents that fiscal decentralization enhances the spending power of local governments, hence the level of fiscal expenditure of local governments is positively correlated with local firm's investment level. Further research highlights that the characteristics of local government officials will moderate the positive relationship between fiscal expenditure and investment comovement. In particular, local government officials' experience of working in central ministries, the fact that they work in the place where they were born, their professional background in the Party and government and the high level of their seniority will weaken the local government financial expenditure's positive impact on the investment herding behaviors.

Key words: fiscal decentralization, government officials' characteristics, investment comovement, urban governance