Does Corruption Hinder Private Businesses? Leadership Stability and Predictable Corruption in China

Abstract

We study whether corruption hinders businesses by investigating China's private enterprises, which have developed rapidly despite high corruption levels. We argue that a key factor determining the effects of corruption is corruption predictability, which is significantly influenced by government leadership stability. When the same leaders remain in major offices for long tenures, corruption is relatively predictable, reducing hindrance to businesses. When leaders change frequently, entrepreneurs need to constantly cultivate new connections with officials and face more uncertainty; therefore, corruption becomes a major obstacle. We conduct field interviews to explore channels through which leadership stability encourages predictable corruption. We also use the 2012 World Bank Enterprise Survey of Chinese private firms and develop a novel measure of leadership stability of the local Chinese government based on a self‐collected data set of municipal party committees to test our hypotheses. Results of various models are consistent with our hypotheses.

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“…Regarding the main type of corruption (private-to-public), the literature can be presented based on the use of microeconomic and macroeconomic approaches. Within the latter field, many authors have developed different analyses (Álvarez Etxeberria & Aldaz Odriozola, 2018; Amor-Esteban, Galindo-Villardón, García-Sánchez, & David, 2019;Borja, 2017;Gelbrich et al, 2016;Gillanders & Neselevska, 2018;Gorsira, Denkers, & Huisman, 2018;Liu et al, 2019;Martin et al, 2007;Rady, 2018;Seleim & Bontis, 2009;Zhu & Zhang, 2017). Rady (2018) studies the effect of bribery on foreign direct investments in developing countries.…”

How Do Intrinsic Motivations, Work‐Related Opportunities, and Well‐Being Shape Bureaucratic Corruptibility?

“…Second, research on corruption in China has focused largely on the correlation between corruption/anticorruption and economic development (e.g., Gong and Zhou 2015;Zhu 2017;Zhu and Zhang 2017) and citizens' attitudes toward corruption and anticorruption (e.g., Li, Xiao, and Gong 2015;Su and Ni 2018). No research has shed light on bureaucrats' motivations for corrupt behaviors.…”

“…In this article, the term corruption takes a narrow and strictly economic sense, referring mainly to bribery and embezzlement, as previous studies focusing on China's corruption have done (Gong and Wu 2012;Gong and Zhou 2015;Li, Xiao, and Gong 2015;Zhu and Zhang 2017). The reason for this narrow definition is that bribery and embezzlement are the two dominant forms of corruption in China and the targets of anticorruption campaigns (Li, Xiao, and Gong 2015).…”

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“…In return entrepreneurs have been offering political elites their loyalty and support in the reform process. This public-private informal alliance for growth is largely responsible for the rise of China (May et al, 2018;McNally, 2018; see also Zhu & Zhang, 2017).…”