5 / 2017-04-30 18:27:09

Anti-Corruption and Corporate Cash Holdings: Evidence from City Politician Downfalls in China

Anti-corruption,cash holdings,shielding effect,precautionary effect

This paper investigates the effect of anti-corruption on firms' cash holding policy by using a detailed hand-collected data of the downfalls of corruptive politicians in China from 2010 to 2015. We find that firms located in affected cities – political leaders are investigated because of corruption – are more likely to increase their cash holdings. Further, the impact of anti-corruption on corporate cash holdings are more pronounced for non-state-owned enterprise and firms with political connections and resemble a short-term effect. Results are robust to a better of sensitivity analysis. Overall, the evidence supports the shielding effect and the precautionary effect.