Rent Seeking and Corporate Finance - CUHK Business School ...

company’s senior managers, directors, or top-10 shareholders has engaged in bribing thebureaucrat. For the three remaining cases that involve the central government and banks, we donot restrict our search of related firms in a province but identifying those publicly listed firmsacross China that have bribed these central government/bank officers. Among 393 companiesthat fit our investigation criteria, 43 companies are identified as bribing firms.To facilitate a natural experiment for the effects of rent seeking on firm financing policies,we next identify a set of firms that are connected with the corrupt bureaucrats but are not bribersnor otherwise involved in the corruption cases. Again, for each company located in thejurisdiction of a corrupt bureaucrat, we search through the company’s initial public offeringprospectus and annual reports prior to the corruption event to find out whether any seniormanagers, directors, or large shareholders are family members of or have prior job affiliationwith the corrupt bureaucrat. We are able to identify 42 companies with such connections. 11We call them connected firms.The remaining 308 listed companies in the corrupt bureaucrats’ jurisdictions are neitherbribers nor connected with the bureaucrats. We call them unconnected firms.Appendix 1 provides an example of our sample identification process. Table 1summarizes the 23 corruption cases and the associated sample firms. The corruption cases areinitially disclosed (event day) during 1995 to 2003. The sentence day is usually a few monthsto a few years subsequent to the event day. The punishment received by the arrested bureaucratsvaries from death penalty to dismissal from position and/or the Communist Party. Appendix 2provides a summary of each of the corruption scandals and their information sources.11 Almost all of them are job connections. Family ties are rare.11