Political Uncertainty, State Ownership, and Credit Reallocation: Evidence from the Chinese Anti-corruption Campaign

Topic:

Political Uncertainty, State Ownership, and Credit Reallocation: Evidence from the Chinese Anti-corruption Campaign

Date:

27/02/2017

Time:

10:30-12:00am

Venue:

Room 502, Daoyuan Building, CUHK (SZ)

Speaker:

Bo Li

PBC School of Finance, Tsinghua University

Detail/

Abstract:

We find that the anti-corruption investigations in China lead to increases in debt issuances for privately- owned, non-SOE peer firms. Our findings suggest that the industry-specific competition effect dominates the contagion effect for non-SOE peers. In contrast, SOE peers experience reductions in debt issuances following anti-corruption investigations. This credit reallocation is associated with higher investment efficiency, suggesting that non-SOE rivals with high productivity benefit from SOE rivals’ potential loss of political connection. This credit shift towards non-SOE firms is more pronounced in short-term debt and bank loans, indicating a supply-side explanation that we corroborate using an exogenous shock in the banking sector.