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Do checks on bureaucrats improve firm value? Evidence from a natural experiment

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  • Jiafu An
  • Seth Armitage
  • Wenxuan Hou
  • Xianda Liu

Abstract

This paper studies the impact on firm value of tighter checks on bureaucrats’ behaviour. We use as a natural experiment the revision in 2015 by the Communist Party of China (CPC) of its regulations on disciplinary actions. We document a positive and substantial market reaction following this unexpected policy change that tightened and formalised constraints on bureaucrats’ misconduct. The impact is less pronounced for firms with state ownership, firms having CEOs or directors with CPC membership, and firms that operate in provinces with better institutional quality. The subsequent revision in 2018 that enforced political obedience is not associated with a positive market reaction.

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  • Jiafu An & Seth Armitage & Wenxuan Hou & Xianda Liu, 2020. "Do checks on bureaucrats improve firm value? Evidence from a natural experiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4821-4844, December.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:5:p:4821-4844
    DOI: 10.1111/acfi.12705
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