Donate to Bribe? Effects of China's Anti-Corruption Campaign on Charity Donations

Abstract

We find that the 2013 Chinese anti-corruption campaign remarkably reduced charitable donations from listed companies with strong political connections, and lessened government subsidies to these companies, implying a reciprocal relationship between companies and the government prior to the campaign. The campaign also improved the productivity of companies with strong connections. The results are consistent with a model in which favor exchanges between firms and the government divert resources away from production in a corrupt environment. These findings highlight a self-serving, and sometimes corrupt, motive of corporate donation, and imply that the centrally-led anti-corruption campaign is highly effective in curbing corrupt collusion between companies and government officials. Moreover, they give empirical support to the negative efficiency implications of corruption.