NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Equilibrium Consequences of Corruption on Firms: Evidence from China's Anti-Corruption Campaign

Haoyuan Ding, Hanming Fang, Shu Lin, Kang Shi

NBER Working Paper No. 26656
Issued in January 2020
NBER Program(s):Development Economics Program, Public Economics Program

We use China's recent anti-corruption campaign as a natural experiment to examine the (market expected) equilibrium consequences of (anti-)corruption. We argue that the announcement of inspections of provincial governments by the Central Commission for Discipline Inspection (CCDI) on May 17, 2013 represents a significant departure of past norms of anti-corruption campaigns, and thus serves a rare empirical opportunity to examine the equilibrium effects of anti-corruption campaigns for firms. We first present a conceptual framework to illustrate the channels through which anti-corruption actions can influence firms. Using an event study approach and May 17, 2013 as the event date, we find that, overall, the stock market responded positively to the announcement of strong anti-corruption actions. The announcement returns are significantly lower for luxury-goods producers, and SOES, large firms, or politically connected firms earn lower returns than private, small, or non-connected firms. We also find that existing local institutions play a crucial role in determining the announcement returns across firms. Moreover, a long-term difference-in-differences analysis shows that higher returns during the event window are associated with more subsequent entries of new firms and faster expansions of existing firms. Finally, we also provide direct evidence consistent with the endogenous grits effect.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w26656

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us