Disrupting political ties, enhancing transparency: China's anti-corruption campaign and corporate R&D disclosure

This paper examines the impact of China's anti-corruption campaign on firms' R&D disclosure practices. Utilizing a novel measure of R&D disclosure transparency, constructed via the Latent Dirichlet Allocation (LDA) approach applied to question-and-answer texts from Earnings Communication Conferences (ECCs), we find that firms with high levels of corruption prior to the campaign significantly increase the transparency of their R&D disclosures following its implementation. These findings remain robust across a range of robustness and endogeneity tests. Further analysis reveals that firms receiving greater R&D subsidies or benefiting from lower debt costs demonstrate more pronounced improvements in R&D disclosure transparency. Moreover, firms exhibiting larger increases in disclosure transparency secure higher levels of R&D subsidies and long-term loans post-campaign. These results suggest that the enhanced R&D disclosure likely represents a strategic response by firms to sustain government support and obtain favorable financing conditions amid weakened political connections. Thus, our study illuminates a novel role for R&D disclosure in enabling firms to adapt to the loss of political ties and highlights an unintended benefit of government anti-corruption efforts in enhancing corporate information transparency.