Anticorruption regulation and firm value: Evidence from a shock of mandated resignation of directors in China

Yongxin Xu

Journal of Banking & Finance, 2018, vol. 92, issue C, 67-80

Abstract: China's broad anti-corruption campaign includes a regulation that requires bureaucrats to resign from director positions in listed companies. Using this particular event to test the effect of the anticorruption regulation, we find that this regulation costs firms with banned directors on average 4%. This cost cannot be explained by the typical cost of losing a director or by damage from a political vendetta conducted by the leadership. We further show that the anticorruption regulation impedes firm value not only through political connections but also through the anticorruption disincentive, the incentive to act passively for fear of being accused of corruption. Finally, affected firms reduce their investments, hire more employees and have poor performance afterwards.

Keywords: Anticorruption regulation; Firm value; Political connection; Anticorruption disincentive (search for similar items in EconPapers)
JEL-codes: G32 G34 G38 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:92:y:2018:i:c:p:67-80

DOI: 10.1016/j.jbankfin.2018.05.008

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