Handcuffing the Grabbing Hand: Evidence from China's Anticorruption Campaign

Abstract

This paper focuses on China's anticorruption campaign's encircling and arrest of the top-level leader Zhou Yongkang. We show that the stock market sees each news that would signal a higher probability of dismantling Zhou's political grip on the oil and gas sector as improving values of those connected firms. Following Zhou's arrest, those firms previously under his control went through deep restructuring with a reduction of the number of executives as well as their compensation, and realized large gains in performance. We find evidence of political tunneling, i.e., state-controlled firms being used as vehicle of tunneling funds towards politicians' other purposes.