Recent Anti-corruption Campaign Research Articles

Inferring the Unofficial Incomes of Officials from Home Ownership

We estimate the size of the likely unofficial income of the government official household by assessing the difference between the income necessary to explain their observed home purchase behavior and the official income. Using unique and comprehensive House Provident Fund and home purchases data between 2006 and 2013 in a large Chinese city, we reach three conclusions. First, an average official’s unofficial income is 83% of her official income; this percentage increases sharply with the official’s rank. Second, about 13% of the officials have an unofficial income, and the proportion also increases with rank. Third, government officials are not underpaid, and their unofficial incomes are not compensation for low government salaries. Additionally, evidence suggests that unofficial incomes have declined since the recent anticorruption campaign. An analysis of a separate crosscity data set corroborates the key conclusion. This paper was accepted by David Sraer, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.01725 .

Anti-corruption campaign and economic growth in Chinese cities: The dichotomous mechanism of network-based political competition

I study how economic growth in Chinese cities responds to the recent anti-corruption campaign, focusing on a novel mechanism of network-based political competition, whereby the removal of investigated officials creates job vacancies and triggers promotion competition within the social network of the investigated officials for the vacancies. Such a network-based competition hinges on the premise that (1) some positions are persistently occupied by certain networks, and (2) high-ranked officials help low-ranked ones to achieve promotion within the network, two facts that are well supported by the evidence. Using a difference-in-differences and an instrumental variable approach, I find that cities’ GDP growth rate registers a 2.5-percentage-point increase following the investigation of the city leader’s connected officials. City leaders create a healthier business environment, attract investments, and increase government spending, while some long-term issues, including innovation, education, and environmental protection, are compromised, indicating the dichotomous nature of political competition.

A “leaner” government? The effect of China's anti-corruption campaign on the body weight and health of public sector employees

Health is fundamental for bureaucrats to properly perform duties so as to deliver the function of the state. Based on a nationally representative longitudinal survey and using a difference-in-differences identification strategy, we study whether and how the recent anti-corruption campaign in China shapes the body weight and health of public sector employees (PSEs). We find that the anti-corruption campaign significantly decreased the BMI and overweight rates of PSEs. Heterogeneity analysis reveals that the effect is more pronounced among the PSEs who are more exposed to corruption ex ante. Further analyses demonstrate that the mechanisms underlying the BMI reduction effect include decreased frequency of alcohol consumption and eating out as well as increased time spent on exercise among PSEs post-campaign. Finally, we find the reduced BMI among PSEs also leads to better self-assessed health and has broader implications for bureaucratic efficiency and governance quality. Overall, this study offers a novel political economic perspective to shed light on an unintended health consequence of China's anti-corruption campaign.

Anti-corruption campaign, political connections, and court bias: Evidence from Chinese corporate lawsuits

This paper establishes the presence of political corruption in court and identifies a novel channel—interfering with court decisions—through which local corrupt politicians provide political favors for politically connected firms. Using a unique data set of 11,238 commercial lawsuits involving Chinese listed firms, we examine how China's recent anti-corruption campaign, one of whose goals is to combat political interference in the courts, affects court advantages of politically connected firms. We find that connected firms' win rates dropped by 6.3% after the anti-corruption, suggesting that the campaign stopped corrupt politicians transferring 1.8% of total monetary amounts of commercial disputes from unconnected to politically connected parties by influencing trials. The effect is more salient for firms connected to more powerful officials, noncontract-based cases, lower-level courts, regions with weak legal environments, and courts that depend more on local government. Moreover, anti-corruption promotes a better judicial environment, not only improves the quality of judicial decisions, but also boosts public confidence in the judicial system, and encourages firms to settle conflicts through court. Finally, we explore the campaign's broader economic influences and find that after the campaign, cities with initially poorly functioning judiciaries gained more investment, employed more labor, produced more output, and attracted more new firms, particularly in those industries with high contract intensity. Overall, the anti-corruption campaign significantly improved the judicial and economic environment in China.

Anti-corruption and poverty alleviation: Evidence from China

This paper studies how China’s recent anti-corruption campaign affects poverty incidence. Employing five waves of the China Family Panel Studies (CFPS) data, we find the (potential) poor households in counties that are more exposed to the anti-corruption campaign are associated with a significantly higher level of income and a consequently lower probability of being in poverty post-campaign. This finding survives a vast array of robustness checks based on alternative model specifications, measures of key variables, and sample selection criteria. We find supportive evidence for three plausible mechanisms behind the poverty-reducing effect of the anti-corruption campaign: improved access to transfer payment, reduced government expropriation, and enhanced formal credit support. However, no evidence indicates that the campaign has increased the provision of public goods. Additional analyses suggest that non-politically connected and low-income households benefit more. Overall, our study offers a novel perspective to shed light on the political economy of poverty alleviation in China.

The power of the market over government officials: Evidence from an anticorruption campaign in China

AbstractExploiting a recent anticorruption campaign in China, an event that incentivizes government officials to hide negative news from central inspection teams (CITs), we study whether market participants can counter that. We find that firm‐level information embedded in stock price actually increases during CIT visits, especially in regions with poor legal environments, stronger social connection, or state‐owned firms. Further, media coverage, analyst coverage, and corporate site visits by external stakeholders increase during the CIT visits. Collectively, our findings indicate that the market defeats local government officials’ attempt to hide firm‐specific news.

Frightened Mandarins: The Adverse Effects of Fighting Corruption on Local Bureaucracy

Canonical theories of bureaucracy demonstrate the need for enhanced monitoring in government hierarchies. I argue that intensive top-down monitoring may reduce the productivity of bureaucrats by frightening them away from the informal practices that they would otherwise rely on when completing daily tasks. Utilizing a unique dataset of sub-provincial inspections in China’s recent anti-corruption campaign, I identify this “chilling effect” by exploiting variation in the timing of inspections from 2012 to 2017. I show that these anti-corruption activities lower the area of land development projects proposed by bureaucrats. Causal mediation analyses with investigation data and original measures of corruption potential reveal that these effects are unlikely driven by reduction of actual corruption. Extension analyses suggest similar consequences on revenue collection and environmental regulation. Although scholars of state-building equate low corruption with effective bureaucracy, these findings present a paradox where intensive state-led efforts to lower corruption may further undermine bureaucrats’ productivity.

Guanxi and Moral Articulation: Strategies of Corruption During China’s Anti-Corruption Drive

What explains failures of large-scale anti-corruption campaigns in reducing corruption? Theories on developing country corruption see corruption as either a problem of weak formal institutions that incentivize naturally opportunistic actors or as remnants of traditional behaviors that persist despite changing modern state boundaries and regulations. Neither helps explain how participants continuously strategize to reframe and articulate the morality of those questionable transactions. This paper, through multi-year fieldwork and 34 interviews with business elites in China’s Guangdong province, examines how officials and businesses reconfigured their strategies of corruption during a recent anti-corruption campaign. We find that key actors engaged in ‘moral articulation’ – devising moral repertoires and realigning common exchange practices to accepted meaning frames to safeguard interests and obfuscate their activities. In doing so, they challenged some aspects of state-initiated definitions of corruption while embracing others. Rather than eliciting conformity, the campaign prompted new ingenious action frames that helped internally justify corruption and allowed questionable exchange practices to continue on.

Gender diversity and financial statement fraud

This study investigates the role of gender diversity in fraud commission and detection with a view to identifying whether companies with more female corporate leaders are less likely to be involved in financial statement fraud. Using a bivariate probit model, the role of female corporate leaders in financial statement fraud commission and detection is examined for Chinese listed companies from 2007 to 2018. The representation of female corporate leaders increases the likelihood of fraud detection, thus reducing firms’ propensity to engage in fraud. The finding confirms that women are risk averse and more committed to ethical practices than men in corporate leadership positions. Moreover, this impact of gender diversity is contingent upon the nature of ultimate controllers of listed companies: more female representation in top leadership roles can mitigate fraud commission or detect fraud effectively in non-state-owned enterprises, but not in state-owned enterprises. In addition, the recent anti-corruption campaign initiated by Chinese President Jinping Xi is a powerful form of public governance. Female corporate leaders play a more positive role in mitigating fraud commission and detecting fraud commission in the post-campaign period than in the pre-campaign period.

Editors' Note

Our current issue opens with a special section titled “Word, Image, Sound,” edited by Matthew Engelke, which charts new directions in the study of religious life and experience. Each of the essays in this section move beyond considerations of doctrine and belief to build on a phenomenological appreciation of concrete practices and their social consequences as these impact the category of religion and the embodiment of religious life.The section brings into focus religion's sensory domain, examining the power of sound, song, spoken word, image, and infrastructure to enhance and alter the affective register of religious practice and performance. The essays examine communities of Muslims—the pageantry of preaching in Egypt and the politics of loudspeakers in Senegal—and of Christians—plans for a “National House of Prayer” in Zambia, Pentecostalist singers' claims to be the “Rwandan voice,” and controversies over religious tracts in Myanmar—to demonstrate that religious belief cannot be disentangled from the materiality and embodiment of its practices. “Word, Sound, Image” thus contributes to a powerful set of perspectives on the tangled relationship between communities of faith and public imaginaries.In “Morality and Freedom” Alyssa Miller investigates Manish Msamah's recent anticorruption campaign in Tunisia, titled “I Do Not Forgive!,” to highlight the dilemmas posed by coercive forms of reconciliation oriented around claims of transitional justice and forms of procedural democracy. Meanwhile, Jairan Gahan examines the red-light district of Tehran in 1922 in the essay “The Sovereign and the Sensible” as a site from which to rethink the relationship between ideas of sovereignty and Islam too often eclipsed by ideas of moral governance in Iran in the longue durée.Finally, our Kitabkhana considers Faiz Ahmed's Afghanistan Rising: Islamic Law and Statecraft between the Ottoman and British Empires, which argues for a renewed look at intra-imperial politics through a consideration of Afghanistan as a crucial if underexplored borderland. Contributors to the book forum approach Afghanistan—and Kabul in particular—as a key geohistorical terrain for the study of Islamic intellectual history and of the twentieth-century transformation of networks of social thought and political practice. They explore both the interconnections and the novel socio-technological constraints that have rendered Afghanistan a fulcrum for broader shifts in anticolonial thought, new formations of practical solidarity, and the reconceptualization of “Islamic law” well into the postcolonial present.

The contingent value of managerial ties for new ventures during China’s anti-corruption campaign

ABSTRACT The tie-based non-market strategy has been widely adopted by new ventures to gain a competitive advantage in China. However, the recent anti-corruption campaign may have profound influences on business practices, particularly on the utilization or leveraging of managerial ties for improving firm performance. This study explored the critically important but fairly underexplored research question of whether managerial ties continue to create value for new ventures under China’s anti-corruption campaign. Based on a sample of Chinese listed firms consisting of new ventures, this study found that business ties and political ties have produced divergent effects on the performance of new ventures since China’s anti-corruption campaign took effect. Moreover, a wider coverage or scope of anti-corruption increased the benefits of business ties and political ties, while a higher intensity of anti-corruption facilitated the role of anti-corruption scope on increasing the benefits of managerial ties for better performance of new ventures.

Corruption and mental health: Evidence from Vietnam

• We examine the relationship between exposure to local corruption and mental health in rural Vietnam. • Using two datasets, we find strong and consistent evidence that petty corruption is positively associated with psychological distress. • Suggestive evidence that a recent anti-corruption campaign had significant positive effects on mental health. • There may be substantial psychosocial and mental health benefits from efforts to reduce corruption and improve governance. While there is substantial corruption in developing countries, the costs imposed by corruption on individuals and households are little understood. This study examines the relationship between exposure to local corruption and mental health, as measured by depressive symptoms. We use two large data sets – one cross-sectional and one panel – collected across rural Vietnam. After controlling for individual and regional characteristics, we find strong and consistent evidence that day-to-day petty corruption is positively associated with psychological distress. Our results are robust to a variety of specification checks. Further, we find that the relationship between corruption and mental health is stronger for women, and that there are no heterogeneous effects by poverty status. An examination of the underlying mechanisms shows that reductions in income and trust associated with higher corruption may play a role. Finally, using a difference-in-difference estimation strategy, we also provide suggestive evidence that a recent high profile anti-corruption campaign had significant positive effects on mental health. Overall, our findings indicate that there may be substantial psychosocial and mental health benefits from efforts to reduce corruption and improve rural governance structures.

The Price of Probity: Anticorruption and Adverse Selection in the Chinese Bureaucracy

AbstractFighting corruption is often seen as a crucial step toward building better institutions, but how it affects political selection remains less well understood. This article argues that in systems where corruption functions as an informal incentive for government to attract talent, anticorruption initiatives that curb rent-seeking opportunities may unintentionally weaken both the quality and the representativeness of the bureaucracy. The authors test this argument in China using an original nationwide survey of government officials and an identification strategy that exploits exogenous variations in enforcement levels created by the recent anticorruption campaign. The study finds that intensified enforcement has generated two potentially negative selection effects: a deterrence effect that lowers the average ability of newly recruited bureaucrats, and a compositional effect that discourages the entry of lower-class individuals in favor of those who are affluent and well connected. These findings highlight important hidden human capital costs of corruption elimination in developing countries.

Is the Bureaucracy Still Attractive? The Role of China’s Anti-Corruption Campaign in Reshaping Occupational Preference

Economic theory suggests that relative payoff scheme in a society might govern the allocation of talent to productive and unproductive activities. This paper provides empirical evidence by showing how China’s recent anti-corruption campaign reshapes people’s preference for bureaucratic jobs by affecting the relative payoff scheme. Employing the National Civil Service Exams data from 2012 to 2017 and using central inspections as quasi-natural experiments, our results, based on a difference-in-differences analysis, suggest that the campaign against corruption discourages people from applying for bureaucratic positions. The estimates are robust to several checks. We also carefully examined three underlying mechanisms behind the decline in applicants, which are income, privilege, and uncertainty. We found that the decrease is driven by the increasing political uncertainty, while the effects of income and privilege are not remarkable.

Local Political Corruption and Financial Reporting Conservatism

We examine the relation between local political corruption and firms’ financial reporting conservatism using provincial-level data on corruption in China. The results show that firms in more corrupt regions report more conservatively. In other words, firms in the more corruption-prone regions are more likely to speed the recognition of bad news and slow the recognition of good news in their reported earnings. Similar results are obtained when we use the recent anti-corruption campaign in China as a quasi-natural experiment. Further analysis reveals that the effects of local corruption on reporting conservatism are weaker when firms are less subject to expropriation by corrupt officials. In summary, our findings imply that firms adopt conservative accounting to systematically understate their earnings and asset values, thereby curbing the expropriation of firm resources by corrupt officials.

The Price of Probity: Anticorruption and Adverse Selection in the Chinese Bureaucracy

Fighting corruption is often seen as a crucial step toward building better institutions, but how it affects political selection remains less well understood. We argue that in systems where corruption functions as an informal incentive for government to attract talent, anticorruption initiatives that curb rent-seeking opportunities may unintentionally weaken both the quality and the representativeness of the bureaucracy. We test this argument in China using an original nationwide survey of government officials and an identification strategy that exploits exogenous variations in enforcement levels created by the recent anticorruption campaign. We find that intensified enforcement has generated two potentially negative selection effects: a deterrence effect that lowered the average ability of newly recruited bureaucrats, and a compositional effect that discouraged the entry of lower class individuals in favor of those who are affluent and well connected. These findings highlight important hidden human capital costs of corruption elimination in developing countries.

Loan financing and investment in princeling-backed firms

This study investigates the role of princelings in Chinese listed firms. Our findings suggest that princelings ensure better access to bank loans for non-SOEs but bring no significant benefits to SOEs. Our empirical results further indicate that bank lending decisions are distorted for princeling-backed firms due to the privileges and protections they can obtain from the higher levels of the government through princelings' family ties. Moreover, we find that, due to excess long-term bank loans, princeling-backed non-SOEs tend to overinvest, which ultimately results in lower investment efficiency. Furthermore, we use the difference-in-difference method to capture the effect of the exogenous shock of the recent anti-corruption campaign in China on princelings and corporate finance and investment. We demonstrate that the anti-corruption campaign launched by the Chinese government in 2012 effectively weakened the power of princeling connections. Overall, our study suggests that by distorting bank lending decisions and encouraging overinvestment, the involvement of princelings in firms causes resource misallocation which favours princeling-backed firms and discourages investment in non-princeling-backed firms.

Frightened Mandarins: The Adverse Effects of Fighting Corruption on Local Bureaucracy

Canonical theories of bureaucracy demonstrate the need for enhanced monitoring in government hierarchies. I argue that intensive top-down monitoring may reduce the productivity of bureaucrats by frightening them away from the informal practices that they would otherwise rely on when completing daily tasks. Utilizing a unique dataset of sub-provincial inspections in China's recent anti-corruption campaign, I identify this ``chilling effect'' by exploiting variation in the timing of inspections from 2012 to 2017. I show that these anti-corruption activities lower the area of land development projects proposed by bureaucrats. Causal mediation analyses with investigation data and original measures of corruption potential reveal that these effects are unlikely driven by reduction of actual corruption. Extension analyses suggest similar consequences on revenue collection and environmental regulation. Although scholars of state-building equate low corruption with effective bureaucracy, these findings present a paradox where intensive state-led efforts to lower corruption may further undermine bureaucrats' productivity.

The king can do no wrong: On the criminal immunity of leaders

In its recent anti-corruption campaign, China removed the criminal immunity originally enjoyed by its leaders. Absent fundamental changes in the political institution—in which incumbent leaders, instead of citizens at large, select the next leaders—such a partial reform pays off only if (i) it takes place at the “right” time, (ii) it goes easy on corrupt low-rank officials, and (iii) the government is reasonably centralized. Failing any of these, such a partial reform would lead to rampant corruption throughout the government hierarchy—an outcome far worse than retaining leader immunity.

Anti-corruption, Tax Enforcement and Private Firms’ Tax-Avoidance

From a theoretical perspective (Vishny and Shleify, 1993), corruption in tax reduces costs. Using firm-level cross-country data, an important paper by Alm, et al. (2016) provides evidence that it is corruption that largely drives higher levels of tax-avoidance. According to the above conclusions, when a country or region takes anti-corruption and tax inspectors no longer dare to accept bribes, will the degree of tax-avoidance of firms naturally decline? The conclusions of this paper show that things are not that simple. In China, private firms can be divided into conservative tax-avoidance private firms and aggressive tax-avoidance private firms according to the income tax rate and the inspection and supervision from the government and other firms. Aggressive tax-avoidance private firms achieve higher degree of tax-avoidance through rent-seeking before the anti-corruption campaign since the 18th Party Congress in China. Using the sample of Chinese listed private firms during 2009-2016, we choose the private firms which are conservative in tax-avoidance as a control group and use the DID method to assess the impact of the recent anti-corruption campaign in China on tax-avoidance of aggressive tax-avoidance private firms. The empirical results show that the recent anti-corruption campaign in China enhances rather than lowers the degree of tax-avoidance of aggressive tax-avoidance private firms. We employ and develop the theory model initiated by Mookherjee and Png (1995) to explain this conflict. We find it is obvious that the degree of tax-avoidance of firms will decline as tax inspectors become less corrupt when information is symmetric between firms and tax inspectors or the inspector intensity of tax inspectors keeps constant before and after the anti-corruption campaign. However, the symmetry of information between the two parties is a very strong assumption. Under the condition of information asymmetry, if the performance incentives for the honest inspection and the penalty for the collusion set by the government meet the conditions of tax corruption, bribes will give tax inspectors stronger incentives to inspect. When the government increases the penalty for corruption of tax inspectors, the latter will choose a lower intensity of inspection, providing a more tax-free environment for aggressive tax-avoiding private firms. In spite that firms choose a lower degree of tax-avoidance in a certain intensity of tax inspection, the equilibrium of firms and tax inspectors may still be manifested as an increase in the degree of firms’ tax-avoidance. Bribery is an inefficient way to motivate tax inspectors. By increasing the penalty for corruption of tax inspectors and providing higher performance rewards or greater promotion prospects, the government can simultaneously achieve the dual goals of eliminating tax corruption and reducing firms’ tax-avoidance. During the anti-corruption campaign in China, the ouster” of senior tax inspectors will provide unexpected promotion for junior tax inspectors. Using this natural experiment” condition of the position vacancies of the ouster” of senior tax inspectors as a measurement of promotion for junior tax inspectors, this paper also examines the impact of promotion prospects of tax inspectors on the degree of tax-avoidance of aggressive tax-avoidance private firms. The empirical results show that ceteris paribus, the promotion prospects of tax law enforcement personnel are negatively related to the degree of tax-avoidance of aggressive tax-avoidance private firms. Promotion prospects have a reverse adjustment effect on the degree of tax-avoidance of aggressive tax-avoidance private firms due to the anti-corruption campaign in China. The main contributions of this paper are as follows: First, the existing literature is less empirically examining how the dynamic changes in the level of corruption of tax inspectors in a country or region affect the degree of tax-avoidance of firms. Using the exogenous shocks provided by the anti-corruption campaign in China, we make up for this deficiency and enrich the relevant literature on anti-corruption (corruption) economics. Second, based on the Mookherjee and Png (1995) model, this paper expands the scope of incentives for client granted by the agent, from simple material incentives to material and political (promotion prospects) incentives. In China’s political system, promotion is a very important incentive for government employees. Our empirical results also show that promotion prospect is an effective incentive to improve tax inspectors’ inspection intensity. This treatment has a stronger explain ability to Chinese economic phenomena.