China's Anti-Corruption Campaign

The Centre for Asian Legal Studies and the Allard Prize are running a series of talks on Xi Jinping’s anti-corruption campaign in China and its implications. The series will focus on the following questions:

  • How will the relationship between the state and civil society in China evolve as the anti-corruption campaign continues?
  • What room might there be for civil society to curtail corruption in the long term?
  • What implications can be expected from Canada’s involvement in this campaign?

The talks are open to the public and will be held at the Peter A. Allard School of Law. Future talks will be posted on both the Allard Prize Twitter and on the events calendar on the Allard Law website. Please check this page regularly for a new summary of each talk as they unfold.

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Randall Morck, Professor and Stephen A. Jarislowsky Distinguished Chair in Finance, University of Alberta

 

On January 10, 2017, Professor Randall Morck based his talk on a National Bureau of Economic Resarch (NBER) working paper, which examined the Chinese government’s anti-corruption campaign from the perspective of investor expectations in the Chinese stock market. Chinese shares rose sharply in reaction to a December 2012 announcement initiating the anti-corruption campaign. Professor Morck and his coauthors analyzed how price swings differed depending on whether a listed company is a state-owned enterprise (SOE), whether it operated in a Chinese province with a high level of market liberalization, and how much the company had historically spent on entertainment expenses.

They found that the shares of SOEs generally rose during this episode, indicating that investors expected anti-corruption efforts to curtail SOE executives’ private perks. However, only privately-owned firms that operated in liberalized provinces saw their shares gaining, suggesting an investor expectation that anti-corruption efforts would lower barriers to markets and external financing. By contrast, non-SOEs in non-liberalized provinces saw their shares drop in value, and the drop was most significant for firms that had spent heavily on entertainment expenses—costs that might have been necessary to “grease the bureaucratic wheel.”

The contrasting results among different groups of non-SOEs vindicate a theory, which Professor Morck has elaborated through a long line of publications, that market development and anti-corruption reforms are mutually reinforcing. Curtailing corruption is necessary to make market entrepreneurship rewarding, and evidence from the Chinese stock market suggests a positive impact on the Chinese economy of the government’s recent initiative.