Gambling culture and corporate violations: Evidence from China

Abstract

This study investigates whether local gambling cultures in China affect corporate violations for 31,670 firm-year observations over the period 2008–2020. The ratio of provincial lottery sales to GDP is used as a proxy for gambling culture. We find that companies headquartered in areas with a strong gambling culture have a higher likelihood of violations than those headquartered in areas with a weak gambling culture. This conclusion is robust to a series of endogeneity tests using instrumental variables and propensity score matching approaches. In addition, manager characteristics and external monitoring affect the positive relationship between gambling culture and corporate violations. Furthermore, we also identify two channels through which gambling culture affects corporate violations: accounting conservatism and geographic diversification of investments. Finally, we find that the Chinese government's efforts to crack down on illegal gambling reduce corporate violations. Overall, our findings provide empirical evidence that gambling culture facilitates corporate violations.