China's anti-corruption campaign and firm productivity: Evidence from a quasi-natural experiment

• Published in: China economic review 2020-10, Vol.63, p.101535, Article 101535
• Main Authors: Kong, Dongmin, Tao, Yunqing, Wang, Yanan
• Format: Article
• Language: English
• Subjects: Anti-corruption campaign; Firm productivity; Innovation; Investment efficiency
• ISSN: 1043-951X; 1873-7781
• DOI: 10.1016/j.chieco.2020.101535

We investigate the causal effects of the anti-corruption campaign on firm-level total factor productivity (TFP) in China. We employ a difference-in-differences estimation to show the following results. (1) The anti-corruption campaign substantially improves TFP by 1.7%. (2) Our findings are particularly pronounced in non-state-owned enterprises, in firms without political connections, and in regions with weak legal environment. (3) We find that the anti-corruption campaign increases the sensitivity of firm investment to investment opportunities and generates more patents, which reveals the importance of investment efficiency channel and innovation channel. This study provides clear policy implication to regulators by identifying firm-level evidence for rent-seeking theory. •We investigate the causal effects of the anti-corruption campaign in China on total factor productivity (TFP).•We find that the anti-corruption campaign substantially improves TFP by 1.7%.•A plausible mechanism is that the anti-corruption campaign increases firms' investment efficiency and innovation.•This study thus provides clear policy implication to regulators by identifying firm-level evidence for rent-seeking theory.