Does China's Anti-Corruption Campaign Promote Corporate Innovation?

Vigorous anti-corruption campaigns launched by China since the 18 th CPC National Congress have produced an extensive impact on China’s political and economic landscapes. From the micro-perspective of corporate innovation, this paper investigates the effects of anti-corruption efforts on corporate behavior. This paper has found that seeking political connections and promoting innovation are mutually substitutable means of development for firms. Anti-corruption efforts have increased the costs for firms to seek political connections and thus raised the incentives for corporate innovation. After the launch of anti-corruption policies, the level of corporate innovation significantly increased. In particular, R&D spending increased significantly for firms previously with political connections. Anti-corruption efforts have promoted overall corporate innovation. This paper has also found that the effects of anti-corruption efforts on corporate innovation are heterogeneous at the provincial level. For firms previously with political connections in provinces with a high anti-corruption intensity, the level of innovation increased more significantly. Given the controversies concerning the effects of the recent round of anticorruption campaign on economic growth, this paper provides new evidence that anticorruption efforts are favorable to corporate innovation. Considering the endogenous problem, this paper has adopted the policy experiment of anti-corruption efforts after the 18 th CPC National Congress and the difference-in-differences(DID) technique.