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Purifying political ecology: How anti-corruption campaign affects capital structure decisions?

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  • Wu, Kai
  • Liu, Jiming

Abstract

This study examines the role of the anti-corruption campaign in capital structure decisions for Chinese listed firms using investigations of senior officials from 2007 to 2019. We find a positive effect of the anti-corruption campaign on the firm’s leverage adjustment speed, consistent with the notion that purified political ecology helps reduce financial frictions in the capital market. The positive relationship is alleviated for firms in cities ruled by the investigated officials as they face a loss of political resources and financing advantages. Financial frictions, agency costs, and credit reallocation are possible channels affecting the capital structure dynamics. Further evidence suggests that the anti-corruption campaign reduces the deviation from the optimal capital structure, facilitates external financing, and increases executive incentives.

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  • Wu, Kai & Liu, Jiming, 2022. "Purifying political ecology: How anti-corruption campaign affects capital structure decisions?," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001408
    DOI: 10.1016/j.pacfin.2022.101845
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    More about this item

    Keywords

    Anti-corruption campaign; Capital structure adjustment; Political connection;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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