Under the Radar: the Role of Subsidiaries in Concealing Political Favors in Chinese Land Transactions

Abstract This paper illustrates how firms with publicly disclosed political connections use subsidiaries to obtain preferential treatment in land markets. While the headquarters of politically connected listed firms pay land prices comparable to those paid by other firms, their subsidiaries receive discounts of 12.1% – 13.2%. These discounts are more pronounced when land is acquired through less transparent methods, in regions with weaker institutional environments, and among private firms. The anti-corruption campaign launched in 2012 effectively mitigates corruption-related discounts, with the magnitude of the discounts negatively associated with campaign intensity. Additionally, larger discounts for subsidiaries are observed following greater charitable donations, suggesting a reciprocal relationship between firms and officials. Overall, the findings contribute to a broader understanding of how firms with publicly disclosed political ties use complex corporate structures to engage in rent-seeking behavior.