The Externalities of Corruption: Evidence from Entrepreneurial Firms in China

The Externalities of Corruption: Evidence from Entrepreneurial Firms in China

Mariassunta Giannetti, Guanmin Liao, Jiaxing You, Xiaoyun Yu

Series number :

Serial Number: 
536/2017

Date posted :

November 02 2017

Last revised :

March 19 2019
SSRN Share

Keywords

  • corruption • 
  • Corporate governance • 
  • capital and labor allocation • 
  • China

Exploiting China’s anti-corruption campaign as an exogenous shock to corruption, we show that following a decrease in the effectiveness of corruption, the performance of firms operating in ex ante more corrupt environments improves. Small firms benefit more. We identify the channels through which corruption hampers firm performance.

Following the anti-corruption campaign, the allocation of capital and labor becomes more efficient. Firms operating in ex ante more corrupt environments experience larger productivity gains, easier access to debt financing, and higher growth of sales than other firms. Overall, our results suggest that corruption creates negative externalities.

View full abstract

Published in

Published in: 
Description: 
Kelley School of Business Research Paper No. 17-6 | Swedish House of Finance Research Paper No. 17-6

Authors

Real name: 
Guanmin Liao
Real name:
Jiaxing You
Real name: 
Xiaoyun Yu