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The power of the market over government officials: Evidence from an anticorruption campaign in China

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  • Nianhang Xu
  • Nian Li
  • Rongrong Xie
  • Kam C. Chan

Abstract

Exploiting a recent anticorruption campaign in China, an event that incentivizes government officials to hide negative news from central inspection teams (CITs), we study whether market participants can counter that. We find that firm‐level information embedded in stock price actually increases during CIT visits, especially in regions with poor legal environments, stronger social connection, or state‐owned firms. Further, media coverage, analyst coverage, and corporate site visits by external stakeholders increase during the CIT visits. Collectively, our findings indicate that the market defeats local government officials’ attempt to hide firm‐specific news.

Suggested Citation

  • Nianhang Xu & Nian Li & Rongrong Xie & Kam C. Chan, 2022. "The power of the market over government officials: Evidence from an anticorruption campaign in China," Financial Management, Financial Management Association International, vol. 51(4), pages 995-1030, December.
    • Handle: RePEc:bla:finmgt:v:51:y:2022:i:4:p:995-1030
    DOI: 10.1111/fima.12393
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    Cited by:

    1. Xiaofeng Quan & Cheng Xiang & Donghui Li & Kelvin Jui Keng Tan, 2023. "To see is to believe: Corporate site visits and mutual fund herding," Financial Management, Financial Management Association International, vol. 52(4), pages 711-740, December.

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