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Do bureaucratic checks improve firm value? Evidence from a natural experiment

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Original languageEnglish
JournalAccounting and Finance
Early online date28 Sep 2020
Publication statusE-pub ahead of print - 28 Sep 2020


This paper studies the impact of bureaucratic checks on firm value using the revision of the regulations on disciplinary actions of the Communist Party of China (CPC) in 2015 as a natural experiment. We document a positive and substantial market reaction following this unexpected policy change that tightens and formalizes the constraints on bureaucrats’ misconduct. The impact is less pronounced for firms with state controlling shareholders or state ownership, firms having CEOs or directors with CPC memberships, and these operate in regions with better institutional quality. The subsequent revision in 2018 that promoted political obedience is not associated with positive market reactions. Our results have policy implications for the design of the incentive structure within bureaucratic organizations.

    Research areas

  • bureaucratic checks, China, anti-corruption, firm value, natural experiment

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