Do Checks on Bureaucrats Improve Firm Value? Evidence from a Natural Experiment

This paper studies the impact on firm value of tighter checks on bureaucrats’ behavior. We use as a natural experiment the revision in 2015 by the Communist Party of China (CPC) of its regulations on disciplinary actions. We document a positive and substantial market reaction following this unexpected policy change that tightened and formalized constraints on bureaucrats’ misconduct. The impact is less pronounced for firms with state ownership, firms having CEOs or directors with CPC membership, and firms that operate in provinces with better institutional quality. However, the subsequent revision in 2018 that enforced political obedience is not associated with a positive market reaction.

Keywords: Bureaucratic Checks, China, Anti-Corruption, Natural Experiment, Firm Value

JEL Classification: D73, G32, C90

Suggested Citation: Suggested Citation

An, Jiafu and Armitage, Seth and Hou, Wenxuan and Liu, Xianda, Do Checks on Bureaucrats Improve Firm Value? Evidence from a Natural Experiment (August 13, 2020). Accounting and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3672876 or http://dx.doi.org/10.2139/ssrn.3672876