“Alcohol Bans”: Can they reveal the effect of Xi Jinping's anti-corruption campaign?

Yang Shu and Jiayao Cai

European Journal of Political Economy, 2017, vol. 50, issue C, 37-51

Abstract: China is perceived to be one of the most politically corrupt countries in the world. Chinese government officials establish firm ties with trusted people through lavish banquets with flowing alcohol, providing privileged access to scarce resources like licenses, land, bank loans, subsidies, and government contracts. In China, Baijiu, the most popular grain liquor at these parties, works as the currency of bribery and is the lubricant for political connections for corruption. Xi Jinping's anti-corruption policy, known as the “Alcohol Bans,” has targeted Baijiu in an attempt to stop the boozy banquets, and, consequently, to bring an end to this channel of political networking. This paper employs the event study approach and connects cumulative abnormal stock returns of high-end Baijiu companies with the impact of the Alcohol Bans. It applies the difference-in-difference method to rule out unobserved reasons for stock market changes. The result is unchanged in both the efficient market hypothesis test and the abnormal return test. We consider if Baijiu may be substituted for other luxuries, and find little evidence for such “substitution effects.” Our work concludes that the Alcohol Bans has partially contributed to Xi's anti-corruption campaign.

Keywords: Corruption; Event study; Alcohol Bans; Chinese political connection (search for similar items in EconPapers)
JEL-codes: D73 G14 P48 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:50:y:2017:i:c:p:37-51

DOI: 10.1016/j.ejpoleco.2017.09.004

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