2024 Asia Meeting, Hangzhou, China: June, 2024
Implicit corruption with subsidiaries: Evidence from land sales in China
Rose Neng Lai; Zongyuan Li; Yildiray Yildirim
This paper presents evidence that politically connected firms hide their political favors through subsidiaries. Specifically, while the headquarters of connected listed firms pay land prices comparable to other firms, their subsidiaries pay 12.1-13.2% less. The discount is exacerbated when the land is sold through supply methods that lack informational transparency and in regions that are susceptible to corruption. Moreover, larger charitable donations are followed by greater price discounts for connected subsidiaries, suggesting a reciprocal relationship between connected firms and government officials. Further difference-in-difference results show that the price distortions were mostly driven by corruption and were rectified by the anti-corruption campaign, while government subsidies became the major determinant afterward.
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