Too cynical: why the stock market in China dimissed initial anticorruption signals

Xiaonan Wang and Yan Wang

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Political leaders in China regularly launch anti-corruption campaigns to win public support. But how are anti-corruption signals perceived? We use event study to examine the case of Xi Jinping’s anti-corruption campaign – an unprecedented effort in China to fight corruption. Contrary to expectations, we find that for the firms with connected officials later investigated, the initial anti-corruption signals – speeches from the top leadership and earlier crackdowns on other senior officials – did not decrease their stock prices. We argue that the perceived high costs of following through and repeated campaigns in the past paradoxically nurtured cynicism. We exploit the case of Zhou Yongkang and Ling Jihua – the two officials who were alleged to be involved in the power struggle and whose downfall had circulated widely since 2012. We find that when the targets of earlier crackdowns were connected to Zhou or Ling, the stock prices of the firms went down only if their connected and later investigated officials were in the same faction; the stock prices of the other firms, however, went up. We interpret the results as investors’ misperceptions of the campaign in the beginning. Our findings suggest that even real efforts in campaign-style enforcement can be dismissed.

Keywords: anti-corruption campaign; campaign-style enforcement; event study; stock market (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2022-12-01
New Economics Papers: this item is included in nep-cna and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Journal of Chinese Political Science, 1, December, 2022, 27(4), pp. 681 - 717. ISSN: 1080-6954

Downloads: (external link)
http://eprints.lse.ac.uk/124863/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:124863

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().