Corruption crime and punishment: evidence from China’s state corruption audits
| Published date | 02 October 2017 |
| Pages | 601-619 |
| DOI | https://doi.org/10.1108/JFC-06-2016-0044 |
| Date | 02 October 2017 |
| Author | Guangyou Liu,Siyu Liu |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Corruption crime and punishment:
evidence from China’s state
corruption audits
Guangyou Liu
Business School, Sun Yat-Sen University, Guangzhou, China, and
Siyu Liu
College of Liberal Arts and Sciences, University of Illinois at Urbana-Champaign,
Urbana, Illinois, USA
Abstract
Purpose –This paper aims to answer the following two research questions: Do corruption cases present
different features before and since the new administration in China? How are criminal penalties affected by
these corruptionfeatures?
Design/methodology/approach –The investigation is based on the online disclosure of 269 state
corruption audits and their consequences, which have been made public by China’s National Audit Office
since 2011. By manual coding, these official reports were analyzed, and an appropriate-sized sample of
corruption cases was chosen. The authorsthen adopted Welch’st-test and regression model methods to test
the researchhypotheses relevant to the two research questions.
Findings –The authors find that larger embezzlement or bribery amounts and more organizational
corruption cases have been detected and punished since the anti-corruption campaign was launchedby the
new administration.They also conclude that significantly tougher criminalpenalties were given to corruption
cases involving large monetaryamounts, that bribery cases were more harshly punished compared to other
occupational crimesand that individual perpetratorsreceived tougher criminal penalties than organizational
criminals. In addition, the authors observe a trend that criminal penalties for corruption have been
increasinglyharsher in recent years.
Research limitations/implications –The limitations of this study are quite clear as the Chinese
corruption cases in this sample only include state corruption audit cases and does not refer to high-profile
corruption cases investigated by the Central Commission of Discipline Inspection. However, this study
suggests thatstate corruption audit results are a good research sample,which can be used to extend empirical
tests to archival data acquired from state audit practices and can encourage more studies on public sector
auditingand occupational financial crime.
Practical implications –State corruption audits can be an effective approach to successful anti-
corruption campaigns,and the conclusions can be useful to policy makers and legislators in China and other
developingcountries.
Originality/value –This paper bridges some gaps in the existing financial crime literature. First, this study
on corruption features is located within the context of a political administrative change; second, the state audit is
highlighted as a supervising agency in the anti-corruption campaign; and third, the authors’contribution adds to
the empirical testing of data sets of state corruption audits within the existing financial crime literature.
Keywords Corruption, Anti-corruption campaign, State audit
Paper type Research paper
Introduction
As stated in Liu (2016),“Corruptionexists in all societies, whether it is socialist or capitalist,
developed or underdeveloped”. Corruption acts as a major and disruptive deterrent to
Corruption
crime and
punishment
601
Journalof Financial Crime
Vol.24 No. 4, 2017
pp. 601-619
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2016-0044
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
economic growth and social development (Jain, 2001). Specifically, corruption plays a
disruptive role in the economic performance of underdeveloped and developing countries
(Gyimah-Brempong, 2002). It is an outstandingly serious problem in many emerging and
transitional economies such as China where lax governmental internal control and
supervision actas a strong pushing hand for the prevalence of corruption.
China’s corruption problems have attracted as much international attention as its rapid
economic growth (Gul and Lu, 2011). The Chinese paradox of corruption and economic
growth is unique in Asia: first came rapid growth througheconomic reforms followed by a
rise in corruption as a byproduct (Westmyer, 2013). Although China is not particularly
prone to corruption, the countryis unique in its ways of perceiving, preventingand fighting
it (Gong, 1994;Liu, 2016).
A robust round of anti-corruption initiatives has been initiated recently in China by the
new leadership of the Chinese Communist Party(CCP) led by President Xi Jinping who took
over as party chief at the endof 2012. This study aims to answer two research questions:
RQ1. Do corruption cases present different features before and since China’snew
administration?
RQ2. How are criminal penaltiesaffected by these corruption features?
A total of 269 state corruption audits and their consequences have been disclosed and
released to the public by China’s National Audit Office (CNAO) since 2011. After manually
coding these official reports into an appropriate-sized sample of corruption cases, we used
statistical methods to test our research hypotheses related to the foregoing research
questions.
We find that larger embezzlement or bribery amounts and more organizational
corruption cases have been detected and punished since the anti-corruption campaign was
launched by the new administration. We also conclude that significantly tougher criminal
penalties were given to corruption cases involving large monetary amounts, that bribery
cases were more harshly punished than other occupational crimes and that individual
perpetrators received tougher criminal penalties than organizational criminals. In addition,
we observe a trend that criminal penalties for corruption have been increasingly harsher in
recent years.
This paper bridges some gaps in the existing financial crime literature. First, our study
on corruption features is located within the context of a political administrative change;
second, the state audit is highlighted as a supervising agency in the anti-corruption
campaign; and third, our contribution adds to the empirical testing of data sets of state
corruption audits withinthe existing financial crime literature.
The remainder of this paper is organized into six sections.The second section presents a
brief description of the anti-corruption campaign in China. The third section provides a
review of prior literature and hypothesis development. The fourth section explains the
research design, data collection and testing methods. The fifth section five presents the
results of this study.Conclusions and implications are in the final section.
A brief description of the anti-corruption campaign in China
Corruption and the necessity of an anti-corruption campaign in China
Corruption is generally defined as the use of publicresources for private gains ( Jain, 2001).
Sands (1990) offers a more academic definition that corruption is the process of solving
government-induced market equilibria using alternative methods of decentralized
transactions. Economicdevelopment and corruption always walk hand in handin emerging
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