Abstract
We consider the effect of anti-corruption at the corporate level, using the Eight-Point Austerity Rules (EPAR) in China as the natural experiment. The EPAR significantly decreases the sales of politically-connected companies, while the firms' profitability remains unchanged in the associated industries. The companies pass through the negative effects of the EPAR shock to the labor market by the layoff and the wage strategies. Furthermore, there exist the regional and the size heterogeneities. State-owned companies, who have the natural political connections, have weaker negative effect than politically-connected private companies. These empirical results are robust.
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