Anti-Corruption Reforms and Shareholder Valuations: Event Study Evidence from China

54 Pages Posted: 8 Feb 2016

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Xiaofeng Zhao

Lingnan University - Department of Finance and Insurance

Multiple version iconThere are 2 versions of this paper

Date Written: February 3, 2016

Abstract

Chinese share prices rose sharply on the Politburo's Dec. 4th, 2012, announcement of its Eight-point Regulation, an uncharacteristically detailed and concrete Party policy, initiating an extensive anti-corruption campaign and announced surprisingly soon after a change in leadership. The reaction is uniformly positive for state-owned enterprises (SOEs), but heterogeneous across non-SOEs. The reaction is more positive for non-SOEs in provinces with more developed market institutions and with higher prior productivity, greater external financing dependence, and greater growth potential. A non-SOEs prior spending on entertainment and travel costs (ETC), a proxy for investment in "connections", correlates negatively with the share price changes of firms based in provinces with weak market institutions. We posit that limiting corruption cuts the valuations of these non-SOEs by limiting their ability to utilize "connections" where these are more important. SOEs are well-connected in any case, and their ETC may reflect their top insiders' perks consumption or self-dealing. Reforms that limit this boost SOEs' valuations. Overall, these results are consistent with investors expecting the reforms to be meaningful and limiting corruption to be more valuable if prior reforms have strengthened market forces.

Suggested Citation

Lin, Chen and Morck, Randall K. and Yeung, Bernard Yin and Zhao, Xiaofeng, Anti-Corruption Reforms and Shareholder Valuations: Event Study Evidence from China (February 3, 2016). Available at SSRN: https://ssrn.com/abstract=2729087 or http://dx.doi.org/10.2139/ssrn.2729087

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

Xiaofeng Zhao

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Rd
Tuen Mun
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
427
Abstract Views
1,740
rank
59,620
PlumX Metrics