China’s Anti-Corruption Campaign and Firm-Level Transparency
55 Pages Posted: 17 Jan 2017 Last revised: 1 Nov 2017
Date Written: October 31, 2017
We examine the impact of China’s anti-corruption campaign on firm-level financial transparency. As an important component of the anti-corruption campaign, in October 2013, “Rule 18” was issued to prohibit government and party 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 government officials as directors. Our empirical analyses employ a difference-in-differences research design with firm fixed effects to examine the pre- and post- period firm-level transparency around the enactment of Rule 18. We find that, compared to propensity-score-matched control firms, the firm-level transparency of firms with official directors increases after Rule 18, and that the effect is stronger for non-state-owned enterprises firms than for state-owned enterprises firms. Further evidence suggests that the impact is stronger when firms 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 face refinancing pressure, received preferential credits, and are small.
Keywords: Anti-Corruption Campaign, Political Connections, Accounting Quality, China, Causal Effects,Quasi Experiment
JEL Classification: G30, G32, G38, M10, M41, M48, N25, N45
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