Political connections and corporate investments: Evidence from the recent anti-corruption campaign in China

Xiaofei Pan, Gary Gang Tian*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

36 Citations (Scopus)

Abstract

Taking advantage of corruption scandals in China, we construct a natural experiment and identify the ousting of corrupt politicians, and firms connected with them through bribery and personal relationships (event firms). We find that the investment expenditure of event firms declines significantly after the ousting of the politicians compared with that of non-event firms, especially for non-SOEs. We also find that, after the ousting of the politicians, investment efficiency improves for event SOEs, but declines for event non-SOEs, compared with their non-event counterparts. We also document that the ousting of the politicians influences firm investment decisions more after the recent anti-corruption campaign, for bribing firms and for firms in more corrupt regions. These results are robust to alternative measurements of key variables and specifications.

Original languageEnglish
Article number105108
Pages (from-to)1-15
Number of pages15
JournalJournal of Banking and Finance
Volume119
Early online date6 Mar 2017
DOIs
Publication statusPublished - Oct 2020

Keywords

  • corruption
  • rent seeking
  • investment decisions
  • political capital

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