Collusive versus coercive corporate corruption: evidence from demand-side shocks and supply-side disclosures

We examine whether and how collusive coercive forms of corporate corruption influence firm value. Our identification strategy exploits (i) the exogenous criminal prosecutions regional government officials as part China’s anti-corruption campaign demand-side shocks (ii) unique reporting entertainment travel costs by Chinese firms supply-side disclosure corruption-related spending. Among for which is likely to be perceived (coercive) investors, we find that exposure political risk measured abnormal has a significantly negative (positive) relation with market reactions prosecutions. These findings are consistent investors’ anticipation future decline in potential benefits (costs) arising from rent-sharing collusion (rent-extracting coercion). also (coercion) effect more pronounced regions greater economic intervention (in industries stronger business competition). Furthermore, provide evidence ex ante corroborate direction changes post operating performance firms. Overall, our results suggest investors can recognize differences consequences between spending could help assess firm’s risk.