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

Accounting and Finance, Forthcoming

34 Pages Posted: 29 Sep 2020

See all articles by Jiafu An

Jiafu An

University of Aberdeen

Seth Armitage

University of Edinburgh - Accounting and Finance

Wenxuan Hou

University of Edinburgh - Business School; University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Xianda Liu

University of Edinburgh, Business School

Date Written: August 13, 2020

Abstract

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

An, Jiafu and Armitage, Seth and Hou, Wenxuan 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

Jiafu An

University of Aberdeen ( email )

King's College
Aberdeen
Aberdeen, AB24 3FX
United Kingdom

HOME PAGE: http://www.jiafuan.net

Seth Armitage

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
44 131 650 3794 (Phone)

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Xianda Liu

University of Edinburgh, Business School ( email )

Edinburgh
United Kingdom

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