This paper examines the effect of the anti-corruption campaign on the investment behavior of Chinese politically connected firms between 2007and 2016. The results indicate that the campaign impacts on the investment expenditures and investment efficiency of Chinese listed firms. Compared with the pre-campaign period, all types of politically connected firms experience an obvious reduction in investment expenditures and SOEs controlled by local governments and Non-SOEs face enhanced investment efficiency after the campaign. Further analysis shows that it is mainly due to the mitigation of underinvestment for SOEs controlled by local governments and the alleviation of both over-investment and underinvestment for Non-SOEs.



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