Corruption Scrutiny and Corporate Investment: Evidence from China
38 Pages Posted: 7 Apr 2015
Date Written: March 2015
We examine whether corporate corruption scrutiny affects corporate investment in China. A corruption news index (CNI) containing firm-specific measures of corruption scrutiny is developed by tracking all articles in the press about corruption for all firms trading on the Shanghai and Shenzhen stock exchanges between 2000 and 2011. This index is included in a traditional model of investment. We find that a standard deviation increase in CNI leads to an initial 6 percent decline in investment, a 9 percent decline the following year, but no effects after two years. Thus, anticorruption campaigns appear to carry temporary costs for corporate investment.
Keywords: corruption news, corporate investment, China, corruption and growth
JEL Classification: D73, G31
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