This study investigates whether corruption differentially affects contracting through auctions and negotiations. Using data on Chinese land-market transactions, where corruption is known to be present, we first show that, on average, it exerts similar effects on transactions carried out via auctions and negotiation. However, this finding masks important heterogeneity – auctions featuring healthy competition are less affected by corruption, and significantly less so than negotiation. We then develop a simple model of bidding under the possibility of corruption that rationalizes our findings.

This paper examines the relationship between kin-based institutions and the state in the modern economy, exploring how clan captures the local government. Using data from China’s primary land market and a nationwide genealogy dataset, we employ spatial matching to estimate clan’s causal impacts on land parcel prices, which are a crucial source of fiscal revenue for local government. We find that firms linked to local clans obtained 1.3%-3.0% lower prices than those without clanship connections. We show that clan firms get lower prices through collusion with bidders, a process facilitated by local officials. This patron-client relationship leads to a decline in economic growth at the county level, while China’s anti-corruption campaign transforms the economic impact from negative to positive.

We investigate whether and how political connections penetrate through headquarter-subsidiary relationships. Our results show that even though the headquarters of politically connected listed firms pay comparable land prices as other firms, their subsidiaries pay 12.1-13.2% less. The price discount, driven by corruption rather than government subsidies, is exacerbated when the land is sold through informationally opaque supply methods and when land is for commercial or residential use. The anti-corruption campaign has successfully mitigated such price distortions. Our findings also show that better legal protection and private sector development are crucial for fair markets.

Using land transaction data in China, we investigate whether and how political connections penetrate through headquarter-subsidiary relationships. The results show that even though the headquarters of politically connected listed firms pay comparable land prices as other firms, their subsidiaries pay 12.1-13.2% less. The price discount, driven by corruption, is exacerbated when the land is for commercial or residential use and is disposed of through informationally opaque supply methods. The anti-corruption campaign has successfully mitigated such price distortions. Our findings also show that better legal protection and private sector development are crucial for fair markets.

China’s land market features a substantial industrial discount: industrial-zoned land is an order of magnitude cheaper than residential land. In contrast to explanations centered on subsidies to industry, we find that a primary determinant of this price gap is local public finance. Under the "land finance" system, land sales are an important source of revenues for Chinese local governments. We show that local governments, who serve as monopolistic land sellers in China, face a trade-off between supplying residential or industrial land that is determined by the different time profiles of revenues from industrial and residential land sales, local governments’ financial constraints, and the extent of local governments’ tax revenue sharing with other levels of government.