The Externalities of Corruption: Evidence from Entrepreneurial Firms in China

73 Pages Posted: 13 Jan 2017 Last revised: 15 Mar 2019

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Guanmin Liao

Renmin University of China - School of Business

Jiaxing You

Xiamen University

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 28, 2019

Abstract

Exploiting China’s anti-corruption campaign as an exogenous shock to corruption, we show that following a decrease in the effectiveness of corruption, the performance of firms operating in ex ante more corrupt environments improves. Small firms benefit more. We identify the channels through which corruption hampers firm performance. Following the anti-corruption campaign, the allocation of capital and labor becomes more efficient. Firms operating in ex ante more corrupt environments experience larger productivity gains, easier access to debt financing, and higher growth of sales than other firms. Overall, our results suggest that corruption creates negative externalities.

Keywords: Corruption, corporate governance, capital and labor allocation, China

JEL Classification: D22, D62, G30, L20, O12, P26

Suggested Citation

Giannetti, Mariassunta and Liao, Guanmin and You, Jiaxing and Yu, Xiaoyun, The Externalities of Corruption: Evidence from Entrepreneurial Firms in China (February 28, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 536/2017; Kelley School of Business Research Paper No. 17-6; Swedish House of Finance Research Paper No. 17-6. Available at SSRN: https://ssrn.com/abstract=2897558 or http://dx.doi.org/10.2139/ssrn.2897558

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Guanmin Liao

Renmin University of China - School of Business ( email )

No. 59 Zhongguancun Street, Haidian District
Beijing, Beijing 100872
China

Jiaxing You

Xiamen University ( email )

Xiamen, Fujian 361005
China

Xiaoyun Yu (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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