Corruption Costs and Corporate Disclosure of Customers : Evidence from a Quasi-Natural Experiment in China

We examine the effect of corruption costs on corporate disclosure of major customers. Using a panel data set for Chinese listed firms over the period 2009-2017 and difference-in-differences estimations, we find that firms with more potential sales-related corruptions respond to the Chinese anti-corruption campaign by reducing the disclosure about their customers’ identities. These results are stronger in firms that are prone to sales-related corruptions: those selling more to industries dominated by SOEs, firms being inactive in innovation before the campaign, or firms operating in regions with poor business environment. Overall, hiding potential sales-related corruptions when the detection risk is heightened appears an important consideration for firms to change their customer disclosure policy. Finally, we provide evidence that firms that reduce the customer identity disclosure appear to benefit from receiving less negative media coverage in the campaign period