China’s Anti-Corruption Campaign and Credit Reallocation from SOEs to Non-SOEs
66 Pages Posted: 1 Feb 2017 Last revised: 15 Mar 2022
Date Written: March 2, 2022
This paper uses publicly released audit reports to study the effects of disclosing information about corruption practices on the credit market. Our novel empirical finding is that the public disclosures during China’s recent anticorruption crackdown led to a reallocation of bank credit—from less-productive state-owned enterprises (SOEs) to more-productive non-SOEs. We estimate both a direct effect on implicated firms and a spillover effect within the exposed industries. Using a hand-collected dataset on the enforcement outcomes, we show that the audits operate via a deterrent effect on lenders to avoid perceived costs of engaging in corruption through state-owned banks. Firm investments are more responsive to released audit reports relative to governance measures. However, the previous anticorruption campaign is muted on a credit-reallocation effect. Our findings highlight the value of having a more informed audit program for enhancing efficiency in the credit market.
Keywords: Anti-corruption, credit allocation, state ownership, public disclosure
JEL Classification: G30, G32, G34, P26
Suggested Citation: Suggested Citation