Real effect of anticorruption on acquisition premium: Evidence from China

Anticorruption is a prevalent global phenomenon and has yielded many good results. This study empirically tests the real effect of China's anticorruption on corporate acquisition premiums and explores its mechanisms. We find that after the exposure of and crackdown on corrupt provincial officials, firms without political connections had lower mergers and acquisitions (M&A) premiums than those with political connections. Cross-sectional test results show that when firms are private or in areas with high marketization, the anticorruption event has a greater impact on their acquisition premiums. The channel test demonstrates that anticorruption reduces the value of political connections and improves the negotiation advantages of nonpolitically connected firms, enabling them to pay lower M&A premiums. Our findings indicate that anticorruption can create a considerably fair business environment. Moreover, we confirm the real effects of anticorruption on the distortion of resource allocation at the firm level. Finally, the results of this research have policy implications for the world's largest emerging market.