Does China’s Anti-Corruption Campaign Promote Corporate Innovation

Dang Li

School of Economics, Renmin University of China, Beijing, China

Abstract:  Vigorous anti-corruption campaigns launched by China since the 18th CPC National Congress have produced an extensive impact on China’s political and economic landscapes. From the micro-perspective of corporate innovation, this paper investigates the effects of anti-corruption efforts on corporate behavior. This paper has found that seeking political connections and promoting innovation are mutually substitutable means of development for firms. Anti-corruption efforts have increased the costs for firms to seek political connections and thus raised the incentives for corporate innovation. After the launch of anti-corruption policies, the level of corporate innovation significantly increased. In particular, R&D spending increased significantly for firms previously with political connections. Anti-corruption efforts have promoted overall corporate innovation. This paper has also found that the effects of anti-corruption efforts on corporate innovation are heterogeneous at the provincial level. For firms previously with political connections in provinces with a high anti-corruption intensity, the level of innovation increased more significantly. Given the controversies concerning the effects of the recent round of anti-corruption campaign on economic growth, this paper provides new evidence that anti-corruption efforts are favorable to corporate innovation. Considering the endogenous problem, this paper has adopted the policy experiment of anti-corruption efforts after the 18th CPC National Congress and the difference-in-differences (DID) technique.
Keywords: anti-corruption campaign, political connections, corporate innovation

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