The Impact of Governmental Pressure on Corporate Corruption Spending: Evidence from China

Corruption creates both social and economic problems, and perhaps as much as any other country, China has faced corruption concerns for decades. Beginning in November 2012, Chinese leader Xi Jinping instituted one of the most widespread anti-corruption campaigns in the country’s history. We investigate its impacts on corporate corruption spending. We use reported Entertainment and Travel Costs as our proxy for corruption spending, and focus on a sample of 107 large Chinese firms with data available over the 2010–2015 time frame. We document significant decreases in our corruption spending proxy over the three-year period following implementation of the anti-corruption campaign relative to the preceding three-year period. We also find that reductions in the spending are significantly more pronounced for firms in industries targeted more directly under the anti-corruption campaign. These results hold when we control for status as a state-owned enterprise and changes in firm profitability. We conclude that, at least in the Chinese setting, governmental pressure was effective at reducing corporate corruption. While we cannot generalise our results to more developed Western economies, our findings would appear to be particularly relevant to developing economies where other forms of social constraints on corruption may be less prevalent.