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Corruption and privatization: Evidence from a natural experiment in China

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  • Ling Zhu
  • Dongmin Kong

Abstract

This paper investigates how government corruption shapes state‐owned enterprises' (SOEs) privatization. To establish causality, we exploit a natural experiment (i.e., the investigations of the Central Commission for Discipline Inspection) to document that SOEs significantly deepen privatization after the crackdown on corruption. Further evidence demonstrates two plausible mechanisms driving our findings. Specifically, anti‐corruption campaign: 1) accelerates privatization process by curbing the underpricing transfers to state entities and encouraging the normal transfers to private entities or individuals; and 2) by reducing managers' incentives to maintain the dominance of state ownership for expropriation through the discretion of perk consumption. Moreover, our findings are particularly pronounced for SOEs located in areas with high levels of social trust, government intervention, and less information asymmetry.

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  • Ling Zhu & Dongmin Kong, 2023. "Corruption and privatization: Evidence from a natural experiment in China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(1), pages 217-239, January.
    • Handle: RePEc:wly:ectrin:v:31:y:2023:i:1:p:217-239
    DOI: 10.1111/ecot.12331
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    Cited by:

    1. Liu, Dongwang, 2023. "Credit corruption, government relation and corporate innovation," Finance Research Letters, Elsevier, vol. 58(PB).
    2. Liu, Lihua & Weng, Danyan & Zhang, Qin, 2023. "Unintended consequences of tax enforcement on corporate innovation: Evidence from a natural experiment in China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1292-1309.
    3. Zhang, Fan & Wu, Guanghao & Zhu, Ling & Zhang, Wenzhe, 2023. "The impact of fiscal squeeze on corporate tax avoidance behaviors: Evidence from the agricultural tax reform," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 890-901.
    4. Gasmi, Farid & Berté, Isacco & Demoury, Louise & Kouakou, Dorgyles & Patzig, Niklas & Recuero Virto, Laura, 2024. "The privatization-corruption relationship is nonlinear: Evidence from 1985-2022 data on telecommunications in 103 countries," TSE Working Papers 24-1523, Toulouse School of Economics (TSE).
    5. Qia, Zhang & Yanting, Jin, 2023. "Historical or contemporary causes of corruption: International evidence," Finance Research Letters, Elsevier, vol. 56(C).

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