The power of the market over government officials: Evidence from an anticorruption campaign in China

Abstract

Exploiting a recent anticorruption campaign in China, an event that incentivizes government officials to hide negative news from central inspection teams (CITs), we study whether market participants can counter that. We find that firm-level information embedded in stock price actually increases during CIT visits, especially in regions with poor legal environments, stronger social connection, or state-owned firms. Further, media coverage, analyst coverage, and corporate site visits by external stakeholders increase during the CIT visits. Collectively, our findings indicate that the market defeats local government officials’ attempt to hide firm-specific news.