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The real effects of corruption on M&A flows: Evidence from China's anti-corruption campaign

Author

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  • Huang, Chenghao
  • Jin, Zhi
  • Tian, Siyang
  • Wu, Eliza

Abstract

We exploit the public enforcement of the anti-corruption campaign across China to identify a causal role of political corruption in corporate takeover flows through a difference-in-differences (DID) analysis. We find that a reduction in corruption increases cross-region takeover activities by 40% and that deal volume more than doubles. Further analyses reveal that treatment effects are more evident for non-SOEs, politically unconnected acquirers, and acquirers that are less corrupt ex ante. We also show that the impact of the anti-corruption campaign is more pronounced in segmented cities where corruption practices are more entrenched. The reduction in corruption leads to higher bidder returns, improves post-acquisition performance, and markedly strengthens local economic development. The evidence indicates that the anti-corruption campaign was effective in attracting inbound corporate investments and supporting economic growth.

Suggested Citation

  • Huang, Chenghao & Jin, Zhi & Tian, Siyang & Wu, Eliza, 2023. "The real effects of corruption on M&A flows: Evidence from China's anti-corruption campaign," Journal of Banking & Finance, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:jbfina:v:150:y:2023:i:c:s0378426623000407
    DOI: 10.1016/j.jbankfin.2023.106815
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    More about this item

    Keywords

    Takeovers; Corruption; Institutional quality; Corporate investment; Real Economy;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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