Are Political Connections Corruption? Evidence from China's Primary Land Market

Abstract

Using transactions conducted by publicly listed firms in China’s primary land market during 2000-2012 as a case study, we confirm that political connections are essentially corruption. By constructing unique measures to partial out the key factors confounding political connections, namely managerial ability and informational advantage, we find that firms whose board directors are retired prefectural government officials paid 15.8-25.5% less for land than firms without such ties. As a counterfactual, such a discount is absent in the secondary land market where the local government is not the sole seller, and during unannounced anti-corruption audit campaigns.

Keywords: Corruption, Political connections, Primary Land market, Anti-corruption Campaigns, China.

JEL Classification: D73, P26, R52.