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Regional integrity and corporate investment efficiency

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  • Liu, Beibei
  • Li, Tingting
  • Li, Chuntao
  • Zhao, Yi

Abstract

This study examines the causal effect of regional integrity culture—a fundamental informal institution—on firm investment efficiency. Using novel datasets and multiple identification strategies—quasi-natural experiments (staggered implementation of China’s Social Credit System, the Red Cross corruption scandal, and headquarters relocations) alongside wallet recovery rate as an instrumental variable—we establish that enhanced regional integrity improves firm investment efficiency through mitigating both under- and overinvestment. Robustness checks corroborate these findings. Mechanism analyses indicate that regional integrity enhances firm investment efficiency through improved transparency and reduced agency costs. Cross-sectional tests reveal that the effect is more pronounced among firms operating in regions with weaker external governance and stronger legal institutions. Our results highlight regional integrity as a critical informal governance mechanism that complements formal institutional constraints to curb managerial opportunism.

Suggested Citation

  • Liu, Beibei & Li, Tingting & Li, Chuntao & Zhao, Yi, 2025. "Regional integrity and corporate investment efficiency," Journal of Economic Behavior & Organization, Elsevier, vol. 237(C).
    • Handle: RePEc:eee:jeborg:v:237:y:2025:i:c:s0167268125003129
    DOI: 10.1016/j.jebo.2025.107193
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