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Anti-corruption, marketisation and firm behaviours: evidence from firm innovation in China

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  • Li Dang
  • Ruilong Yang

Abstract

China has launched an anti-corruption campaign since the Eighteenth CPC National Congress, which has exerted widespread influences on Chinese politics and economy. This paper examines the effect of the anti-corruption initiative on firm behaviours from the perspective of research and development (R&D) investments. It shows that pursuing political connections and improving innovation are two mutually exclusive alternatives for firm growth in China. The anti-corruption campaign raises the cost of seeking for political bond and strengthens the incentive for firm innovation. After anti-corruption policies and regulations were issued, R&D expenditure in politically connected firms increases significantly; the anti-corruption initiative has positive effects on firm innovation. Further research shows that the effects vary with different types of firms. For state-owned enterprises (SOEs), the anti-corruption initiative only increases the R&D investments of firms with senior executives who used to serve in the government; while for non-state-owned enterprises (non-SOEs), this campaign has all-around positive effects on their R&D investments. In the meantime, a heterogeneity at the provincial level is observed: R&D investments of firms with political connections increase more significantly in provinces with more intense anti-corruption efforts. Finally, marketisation also has a role to play. For regions with a more developed market economy, anti-corruption increases the innovation of firms with political connections; whereas in regions with a less developed market economy, this effect is insignificant. This paper provides evidence for the opinion that anti-corruption is favourable to economic growth in China. To solve the endogeneity problem, it uses data obtained from the anti-corruption policy experiment since the Eighteenth CPC National Congress and the difference-in-differences (DID) method to further test the hypotheses.

Suggested Citation

  • Li Dang & Ruilong Yang, 2016. "Anti-corruption, marketisation and firm behaviours: evidence from firm innovation in China," Economic and Political Studies, Taylor & Francis Journals, vol. 4(1), pages 39-61, January.
  • Handle: RePEc:taf:repsxx:v:4:y:2016:i:1:p:39-61
    DOI: 10.1080/20954816.2016.1152093
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    Citations

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    Cited by:

    1. Marwa Sallemi & Salah Ben Hamad & Nejla Ould Daoud Ellili, 2023. "Executive compensation and bank’s stability: which role of the corruption control? An empirical evidence from OECD banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(2), pages 457-477, June.
    2. Fanli Zhou & Tianshu Zheng & Thomas Schrier & John Farrish, 2022. "Examining the Impact of China’s Corruption Crackdown: A Forecast for Macau’s Tourism and Gaming Industry," Tourism and Hospitality, MDPI, vol. 3(3), pages 1-13, August.
    3. Wu, Jiamei & Chen, Zhibin & Guo, Chong, 2022. "How does anti-corruption affect green innovation? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 405-424.
    4. Kong, Gaowen & Huang, Jiating & Ma, Guangyuan, 2023. "Anti-corruption and within-firm pay gap: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Marwa Sallemi & Salah Ben Hamad & Nejla Ould Daoud Ellili, 2023. "Impact of board of directors on insolvency risk: which role of the corruption control? Evidence from OECD banks," Review of Managerial Science, Springer, vol. 17(8), pages 2831-2868, November.
    6. Huanming Wang & Xiaoyun Sun & Yu Shi, 2024. "Commercial investment in public–private partnerships: the impact of government characteristics," Local Government Studies, Taylor & Francis Journals, vol. 50(1), pages 230-260, January.
    7. Liu, Shiyuan & Du, Jiang & Zhang, Weike & Tian, Xiaoli & Kou, Gang, 2021. "Innovation quantity or quality? The role of political connections," Emerging Markets Review, Elsevier, vol. 48(C).
    8. Zhang, Huiming & Wan, Dayu & Sun, Chuanwang & Wu, Kai & Lin, Caixia, 2023. "Does political inspection promote corporate green innovation?," Energy Economics, Elsevier, vol. 123(C).
    9. Tian, Ni & Zhang, Zongyi, 2018. "How do anticorruption measures affect executive incentive?," Finance Research Letters, Elsevier, vol. 24(C), pages 179-185.
    10. Shiyuan Liu & Jiang Du & Weike Zhang & Xiaoli Tian, 2021. "Opening the box of subsidies: which is more effective for innovation?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 421-449, September.

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