How does anti-corruption affect corporate innovation? Evidence from recent anti-corruption efforts in China

This paper investigates the effect of anti-corruption on the financing of and investing in innovation by using a detailed data set of Chinese listed companies from 2009 to 2015. We find that stronger anti-corruption efforts make firms more likely to acquire external funds, mainly the long-term debt. Moreover, we show that firms located in provinces with stronger anti-corruption efforts invest significantly more of their newly acquired funds in R&D and generate more patents. Further empirical tests suggest this positive and statistically significant effect almost comes entirely from the current massive anticorruption campaign launched by President Xi Jinping since 2013. We further test two mechanisms regarding the corruption-innovation nexus: the expropriation hypothesis and the rent-seeking hypothesis. The results show that only firms without political connections, non-state owned enterprises (non-SOEs), firms operating in non-regulated industries and younger firms benefit from the stronger anti-corruption efforts, all supportive of the former mechanism. Journal of Comparative Economics 45 (2017) 498-519. Graduate School of Economics, Kyoto University, Yoshida-honmachi, Sakyo-ku, Kyoto, 606-8501, Japan. (C) 2016 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.