Does corruption shape firm centralisation? Evidence from state‐owned enterprises in China

Dongmin Kong, Ling Zhu and Ni Qin

Accounting and Finance, 2022, vol. 62, issue 3, 3365-3395

Abstract: This paper investigates the effects of corruption on centralisation in state‐owned enterprises (SOEs). Based on a unique setting in China where both parent firms' and the whole business group’s financial statements are mandatorily disclosed, we construct a novel proxy of centralisation exploiting the allocation decision rights within business groups. We then introduce a quasi‐natural experiment (i.e., China’s anti‐corruption campaign) to present that the reduction of corruption significantly enhances the centralisation of SOEs. A plausible mechanism is that the anti‐corruption campaign reshapes firms' internal governance and operation. Our findings are particularly pronounced for SOEs with low levels of financing conditions and ownership concentration.

Date: 2022
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