Politics and Asset Prices: China’s Anti-Corruption Campaign and Prices of Luxury Homes in Beijing

This paper provides new evidence for the effects of politics on asset values. We analyze the impact of China’s anti-corruption campaign on house prices due to owners’ fire sales of luxury condos. Taking advantage of the exogenous timing and targets of 11 rounds of anti-corruption travel inspection from 2012 to 2017, we use the difference-in-difference approach to find that when inspections began, prices decreased significantly more for luxury condos near inspection targets than those farther away. In magnitude, luxury condos in Beijing commanded about 5% higher prices before the anti-corruption announcement. Then, they were sold at a 5% discount afterward, and the discount was more significant in the two districts where most government agencies are located. An increase in luxury condo sales accompanied the decrease in the luxury premium, further corroborating the fire sale story.