Does corruption shape firm centralization? Evidence from state-owned enterprises in China

This study investigates the causal effects of corruption on firm centralization. Based on a unique setting in China that both parent firms’ and the whole group’s financial statements are mandatorily disclosed, we construct a novel proxy of centralization exploiting the allocation decision rights within group firms. We then verify the reliability of our measure and introduce a quasi-natural experiment (i.e., China’s anti-corruption campaign) to present that the reduction of corruption significantly enhances state-owned enterprises’ (SOEs’) centralization. A plausible mechanism is that the anti-corruption campaign reshapes firms’ external business environment and internal governance. Our findings are particularly pronounced for SOEs located in areas with high economic development/openness, low government intervention, better financing conditions, intensive industry concentration, and low ownership concentration.