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Anticorruption, Government Subsidies, and Innovation: Evidence from China

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  • Lily Fang

    (Finance Department, Institut Européen d’Administration des Affaires (INSEAD), Fontainebleau, France 77305)

  • Josh Lerner

    (Entrepreneurial Management Unit and Finance Unit, Harvard Business School, Boston, Massachusetts 02163)

  • Chaopeng Wu

    (School of Management, Xiamen University, Xiamen, Fujian 361005, China)

  • Qi Zhang

    (School of Management, Shandong University, Jinan, Shandong 250100, China)

Abstract

We leverage an exogenous shock—the crackdown on corrupt Chinese officials beginning in 2012—and examine how the allocation of research subsidies and innovative outcomes were affected. We argue that the staggered removal of provincial heads on corruption charges during China’s anticorruption campaign and the unanticipated departures of local government officials responsible for innovation programs led to plausibly exogenous reductions in corruption. After both events, the allocation of subsidies became more sensitive to firm merit than to corruption and subsidies became more strongly associated with future innovation. Anticorruption efforts and officials’ career incentives improved the efficacy of subsidy programs.

Suggested Citation

  • Lily Fang & Josh Lerner & Chaopeng Wu & Qi Zhang, 2023. "Anticorruption, Government Subsidies, and Innovation: Evidence from China," Management Science, INFORMS, vol. 69(8), pages 4363-4388, August.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:8:p:4363-4388
    DOI: 10.1287/mnsc.2022.4611
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    References listed on IDEAS

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    Cited by:

    1. Na, Chaohong & Ni, Zhixing & Shu, Qiu & Zhang, He, 2024. "Can government subsidies improve corporate ESG performance? Evidence from listed enterprises in China," Finance Research Letters, Elsevier, vol. 64(C).

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