Ascribed Political Connections and Firms’ Bribery in the Aftermath of Anticorruption Campaigns

Abstract

We construct a theoretical model to understand how firms adapt their corporate political strategy when political officials reshuffle in the aftermath of anticorruption initiatives. We delineate two types of bribery, i.e., greasing bribery and paving bribery, and posit that in the aftermath of anticorruption campaigns, firms with ascribed political connections, i.e., state-owned enterprises (“insiders”) reduce their expenditures on greasing bribery, while firms without ascribed political connections, i.e., family firms (“outsiders”) increase their expenditures on paving bribery. These effects are strengthened when firms are more reliant on government. Our theoretical predictions are supported by the evidence from Chinese listed firms between 2007 and 2018.