Does Corruption Shape Firm Centralization? Evidence from State-owned Enterprises in China

45 Pages Posted: 26 Apr 2021

See all articles by Dongmin Kong

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Ling Zhu

Huazhong University of Science and Technology

Date Written: November 23, 2020

Abstract

This study investigates the causal effects of corruption on firm centralization. Based on a unique setting in China that both parent firms’ and the whole group’s financial statements are mandatorily disclosed, we construct a novel proxy of centralization exploiting the allocation decision rights within group firms. We then verify the reliability of our measure and introduce a quasi-natural experiment (i.e., China’s anti-corruption campaign) to present that the reduction of corruption significantly enhances state-owned enterprises’ (SOEs’) centralization. A plausible mechanism is that the anti-corruption campaign reshapes firms’ external business environment and internal governance. Our findings are particularly pronounced for SOEs located in areas with high economic development/openness, low government intervention, better financing conditions, intensive industry concentration, and low ownership concentration.

Keywords: anti-corruption campaign, centralization, SOEs, natural experiment, China

JEL Classification: G30; M41; L22; D73

Suggested Citation

Kong, Dongmin and Zhu, Ling, Does Corruption Shape Firm Centralization? Evidence from State-owned Enterprises in China (November 23, 2020). Available at SSRN: https://ssrn.com/abstract=3832870 or http://dx.doi.org/10.2139/ssrn.3832870

Dongmin Kong (Contact Author)

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Ling Zhu

Huazhong University of Science and Technology ( email )

1037 Luoyu Road
Wuhan, Hubei 430074
China

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