China’s Anti-Corruption Campaign and Financial Reporting Quality

54 Pages Posted: 17 Jan 2017 Last revised: 2 Jun 2019

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Heng Yue

Singapore Management University - School of Accountancy

Qinlin Zhong

Renmin University of China - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2019

Abstract

We examine the impact of China’s anti-corruption campaign on firm-level financial reporting quality (FRQ). As an important component of the anti-corruption campaign, in October 2013, “Rule 18” was issued to prohibit party and government officials from serving as directors for publicly listed firms. The regulation led to a large number of official directors resigning from their roles as directors involuntarily. As such, Rule 18 has effectively weakened, if not fully discontinued, the political connections of the firms that previously hired officials as directors. Our empirical analyses employ a difference-in-differences research design with firm fixed effects and PSM to examine the pre- and post- period FRQ around the enactment of Rule 18. We find that, compared to propensity-score-matched control firms, FRQ of firms with resigned official director increases after Rule 18. Further evidence suggests that the impact is stronger when firms are located in regions with more developed financial markets and in regions with higher judiciary efficiency. We also find that the effect is more pronounced when firms are non-state-owned, received preferential credits, and face refinancing pressure.

Keywords: Anti-Corruption Campaign, Political Connections, Accounting Quality, China, Causal Effects,Quasi Experiment

JEL Classification: G30, G32, G38, M10, M41, M48, N25, N45

Suggested Citation

Hope, Ole-Kristian and Yue, Heng and Zhong, Qinlin, China’s Anti-Corruption Campaign and Financial Reporting Quality (May 30, 2019). 2017 Canadian Academic Accounting Association (CAAA) Annual Conference, Rotman School of Management Working Paper No. 2899403, Singapore Management University School of Accountancy Research Paper No. 2017-56, Available at SSRN: https://ssrn.com/abstract=2899403 or http://dx.doi.org/10.2139/ssrn.2899403

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Heng Yue

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Qinlin Zhong

Renmin University of China - School of Business ( email )

Beijing
China

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