Political connection, corporate philanthropy and efficiency: Evidence from China’s anti-corruption campaign

• Published in: Journal of Comparative Economics Vol. 48; no. 3; pp. 688 - 708
• Main Authors: Hao, Zhuoqun, Liu, Yu, Zhang, Jinfan, Zhao, Xiaoxue
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.09.2020
• Subjects: China’s anti-corruption campaign; Corporate donation; Efficiency; Government subsidy; Political connection; Government subsidy; D73; Corporate donation; Efficiency; D22; China’s anti-corruption campaign; Political connection
• ISSN: 0147-5967; 1095-7227
• DOI: 10.1016/j.jce.2020.03.002

•We find that the 2013 Chinese anti-corruption campaign remarkably reduced charitable donations from listed companies with strong political connections, and lessened government subsidies to these companies, but improved the productivity of these companies.•The results imply a reciprocal relationship between companies and the government prior to the campaign and are consistent with a model in which favor exchanges between firms and the government divert resources away from production in a corrupt environment.•These findings highlight a self-serving motive of corporate donation and give empirical support to the negative efficiency implications of corruption.•The findings imply that the campaign was effective in curbing corrupt collusion between companies and government officials. We find that the 2013 Chinese anti-corruption campaign remarkably reduced charitable donations from listed companies with strong political connections, and lessened government subsidies to these companies, implying a reciprocal relationship between companies and the government prior to the campaign. The campaign also improved the productivity of companies with strong connections. The results are consistent with a model in which favor exchanges between firms and the government divert resources away from production in a corrupt environment. These findings highlight a self-serving, and sometimes corrupt, motive of corporate donation, and imply that the campaign is effective in curbing corrupt collusion between companies and government officials. Moreover, they give empirical support to the negative efficiency implications of corruption.