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

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Xu Yunhong is the former Vice-Province Governor of Zhejiang province. He helped Ningbao International Trustand Investment Corporation to obtain loans. He also committed malfeasance and caused huge losses of governmentassets worth RMB1.2 billion. He forced Ningbao Daily to purchase Huahong International Center building from aprivate owner businessman Zhong. It caused a huge economic loss for Ningbao Daily. In return, his son acceptedbribes that were worth RMB5,690,000, HK$120,000, US$25,000, and a villa that was worth RMB850,000. He wassentenced to 10 years of imprisonment in 2000.Source: Communiqué of Hangzhou Supreme Court [No. 110, 2000]38
Appendix 3Additional Robustness TestsWe run battery of sensitivity analyses to check the robustness of our key results. First, weredefine our event firms. If a firm is identified as a briber or a connected firm in a corruptioncase, the firm is classified as an event firm in every other corruption case occurred in the sameprovince. Previously, it is classified as an event firm only in the corruption case that it isinvolved. The new definition gives us 102 event firms, of which 51 are connected firms. Ouranalyses based on the new definition give qualitatively similar results.We next examine whether different degrees of punishment in the corruption cases wouldaffect the event firms’ financing behaviors differently. We include those cases in whichbureaucrats are sent to prison or death role, while exclude those cases ended up with less seriouspunishment such as expel from service or party. Our overall results remain similar.Firms may be delisted from trading and hence creating survivorship bias in our analysis.We find only five firms are delisted 1 year or 2 years after the events. Among the five firms, twofirms are event firms, while the other three are non-event firms. The small number of the delistedfirms has not caused systematic bias in our analysis.To check if our results are sensitive to the choice of scaling factor, we use total sales as analternative scaling factor. The results remain intact. We also perform regression analysis on thepercentage changes in the level of total debt, long-term debt and short-term debt. Similar resultsare obtained.We also choose different event windows to examine the changes in firms’ financing. Wererun the financing regressions (Tables 4-6) using paired data of year -1 with year +1, year -2with year +2, or year -3 with year +3.Again, the results are similar and consistent.39
Page 1 and 2: Rent Seeking and Corporate Finance:
Page 3 and 4: politically connected or bribing fi
Page 5: Twite (2005) report that corporate
Page 8: three policy banks 4 , ten national
Page 11 and 12: company’s senior managers, direct
Page 13: cases, we identify a matching firm
Page 17 and 18: events (Figure 3.2). 15Overall, the
Page 19 and 20: and 8), while significantly positiv
Page 22 and 23: 4.1. The event studyTo examine whet
Page 24: the Corrupt dummy as defined before
Page 27 and 28: non-event firms. 21If the event fir
Page 29 and 30: 6. ConclusionsWe have examined the
Page 31 and 32: References:Acemoglu, D., and Johnso
Page 33 and 34: MacKay, P., and Phillips, G.M., 200
Page 35 and 36: Appendix 2Summary of the corruption
Page 37: imprisonment in 1998.Source: Commun
Page 41 and 42: Figure 1Leverage and CorruptionFigu
Page 43 and 44: Figure 3Long-term leverage and Corr
Page 45 and 46: Table 2Capital Structure, Debt Matu
Page 47 and 48: Table 3Differences in the Change in
Page 49 and 50: Table 4Fixed-Effect Regression Resu
Page 51 and 52: Table 5Fixed-effect Regression Resu
Page 53 and 54: Table 6Changes in Leverage and Stoc
Page 55 and 56: Table 7 (Continued)Panel B. Sub-sam

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