The Real Effects of Corruption on Corporate Takeover Activity: Evidence From China’s Anti-Corruption Campaign

Abstract

This paper examines how political corruption affects M&A activities. By exploiting the public enforcement of the anti-corruption campaign across different regions in China, we find in a difference-in-difference (DID) setting that the reduction in corruption increases cross-region takeover activities by 40% and deal volume more than doubles. Further analysis reveals that the reduction in market entry barriers and the decreased potential for political rent extraction are two plausible economic channels behind these real effects on corporate investments. Reduction in corruption also leads to higher bidder returns and improves post-acquisition performance. Furthermore, such a campaign significantly strengthens local economic development (higher GDP per capita growth, higher general government revenue per capita, and lower unemployment rate).