Anticorruption and Corporate Investment in China: Evidence from a Quasi-Natural Experiment

Abstract

We evaluate the impact of the last Chinese anti-corruption campaign (ACC) on firms’ investment. We exploit the sudden and abnormal surge in the rate of “Tigers” investigations due to the increase in anti-corruption monitoring. This change led to an overall decrease in investment of private firms, but not state-owned ones. The impact was stronger for the inefficient companies and curbed the overinvestment rates of the most efficient ones. Results are robust to additional tests and do not depend on the political uncertainty introduced by the ACC. We conclude that the ACC modified the opportunity costs of investing in China.

Keywords: Corruption, Anticorruption in China, Firms’ investment behavior, Difference in Difference, Quasi-Natural Experiment

JEL Classification: D73, G31, P26