Corruption Scrutiny and Corporate Investment: Evidence from China

38 Pages Posted: 7 Apr 2015

See all articles by Carlos D. Ramirez

Carlos D. Ramirez

George Mason University - Department of Economics

Yi Huang

Graduate Institute of International and Development Studies

Date Written: March 2015

Abstract

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

Suggested Citation

Ramirez, Carlos D. and Huang, Yi, Corruption Scrutiny and Corporate Investment: Evidence from China (March 2015). GMU Working Paper in Economics No. 15-28, Available at SSRN: https://ssrn.com/abstract=2590813 or http://dx.doi.org/10.2139/ssrn.2590813

Carlos D. Ramirez (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Enterprise Hall MSN 3G4
Fairfax, VA 22030
United States
703-993-1130 (Phone)
703-993-1133 (Fax)

Yi Huang

Graduate Institute of International and Development Studies ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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