The Real Effects of Corruption on Corporate Takeover Activity: Evidence From China’s Anti-Corruption Campaign

56 Pages Posted: 1 Feb 2021

See all articles by Chenghao Huang

Chenghao Huang

Southwestern University of Finance and Economics (SWUFE)

Zhi Jin

Southwestern University of Finance and Economics (SWUFE)

Siyang Tian

Southwestern University of Finance and Economics (SWUFE)

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Date Written: December 1, 2020

Abstract

This paper examines how political corruption affects M&A activities. By exploiting the public enforcement of the anti-corruption campaign across different regions in China, we find in a difference-in-difference (DID) setting that the reduction in corruption increases cross-region takeover activities by 40% and deal volume more than doubles. Further analysis reveals that the reduction in market entry barriers and the decreased potential for political rent extraction are two plausible economic channels behind these real effects on corporate investments. Reduction in corruption also leads to higher bidder returns and improves post-acquisition performance. Furthermore, such a campaign significantly strengthens local economic development (higher GDP per capita growth, higher general government revenue per capita, and lower unemployment rate).

Keywords: Takeovers, Corruption, Institution Quality, Corporate Investment, Real Economy

JEL Classification: G34, D73, O17, G32

Suggested Citation

Huang, Chenghao and Jin, Zhi and Tian, Siyang and Wu, Eliza, The Real Effects of Corruption on Corporate Takeover Activity: Evidence From China’s Anti-Corruption Campaign (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3743170 or http://dx.doi.org/10.2139/ssrn.3743170

Chenghao Huang

Southwestern University of Finance and Economics (SWUFE)

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Zhi Jin (Contact Author)

Southwestern University of Finance and Economics (SWUFE)

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

Siyang Tian

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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