TY - JOUR
T1 - De-politicization and Corporate Transformation
T2 - Evidence from China
AU - Berkowitz, Daniel
AU - Lin, Chen
AU - Liu, Sibo
N1 - Funding information:
This is a substantially overhauled version of our working paper entitled “De-Politicization and Corporate Transformation: Evidence from China’s Anti-Corruption Reforms.” We are grateful to comments from the editor (Rocco Macchiavello) and three anonymous referees. We thank Raymond Fisman, Xavier Giroud, Daniel Jones, Ross Levine, Maria Petrova, James Robinson, Yogita Shamdasani, Andrei Shleifer, Zheng Michael Song, Michael Weisbach, and participants of the Harvard economics department China seminar, the development retreat at the Harvard Business School, the PRC New Economic Normal conference, and the University of Pittsburgh labor-development brownbag for their comments. Berkowitz conducted some of this research while he was a visiting scholar at the NBER. C.L. would like to thank the financial support from the Research Grants Council of Hong Kong (Project No. 17504117). S.L. would like to thank the financial support from the Research Grants Council of Hong Kong (Project No. 23601319).
Publisher Copyright:
© The Author(s) 2021.
PY - 2022/7
Y1 - 2022/7
N2 - It is well understood that when firms receive favorable treatment from the government because of their political connections and not necessarily their economic merits, they may operate inefficiently while enjoying market advantages over their unconnected peers. However, just how firms respond to the sustained removal of their political connections has not been carefully studied. This article evaluates an unanticipated reform in China that removed government-related personnel from independent directorships of publicly listed companies. Our evidence indicates that treated firms experienced a temporary increase in their cost of debt, but invested more in R&D, imported more machinery, and became more productive and transparent. These adjustments counterbalanced the negative value effect from the financial markets when the regulation was first announced (JEL G38, P26, K20).
AB - It is well understood that when firms receive favorable treatment from the government because of their political connections and not necessarily their economic merits, they may operate inefficiently while enjoying market advantages over their unconnected peers. However, just how firms respond to the sustained removal of their political connections has not been carefully studied. This article evaluates an unanticipated reform in China that removed government-related personnel from independent directorships of publicly listed companies. Our evidence indicates that treated firms experienced a temporary increase in their cost of debt, but invested more in R&D, imported more machinery, and became more productive and transparent. These adjustments counterbalanced the negative value effect from the financial markets when the regulation was first announced (JEL G38, P26, K20).
UR - http://www.scopus.com/inward/record.url?scp=85132705421&partnerID=8YFLogxK
U2 - 10.1093/jleo/ewab007
DO - 10.1093/jleo/ewab007
M3 - Journal article
AN - SCOPUS:85132705421
SN - 8756-6222
VL - 38
SP - 479
EP - 510
JO - Journal of Law, Economics, and Organization
JF - Journal of Law, Economics, and Organization
IS - 2
ER -