China’s Anti-Corruption Campaign and Credit Reallocation from SOEs to Non-SOEs

66 Pages Posted: 1 Feb 2017 Last revised: 15 Mar 2022

See all articles by Bo Li

Bo Li

Tsinghua University - PBC School of Finance

Zhengwei Wang

Tsinghua University - PBC School of Finance

Hao Zhou

Tsinghua University - PBC School of Finance; SUSTech Business School

Date Written: March 2, 2022

Abstract

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

Li, Bo and Wang, Zhengwei and Zhou, Hao, China’s Anti-Corruption Campaign and Credit Reallocation from SOEs to Non-SOEs (March 2, 2022). PBCSF-NIFR Research Paper No. 17-01, Available at SSRN: https://ssrn.com/abstract=2908658 or http://dx.doi.org/10.2139/ssrn.2908658

Bo Li (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China
+86 10-627982146 (Phone)

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Hao Zhou

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing, 100083
China
+86-10-62790655 (Phone)

SUSTech Business School ( email )

1088 Xueyuan Avenue, Nanshan District
Southern University of Science and Technology
Shenzhen, Guangdong
China
+86-0755-88010464 (Phone)

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