The government of China started its anti-corruption campaign in December 2012. Since then, more than 600 government officials have been investigated. We regard the investigations involving senior officials as signals of increased political uncertainty. Focusing on these events, we study how firms’ exposure to political uncertainty varies with government ownership. It is found that the stock performance of private firms is worse on the event days than in normal times, whereas state-owned enterprises (SOEs) suffer less from the events. Moreover, the event-day effects are not quickly reversed in the post-event periods. Among SOEs, the negative impact of the events also decreases with government ownership. The evidence indicates that government ownership mitigates firms’ exposure to political uncertainty.

Using a unique dataset of Chinese households, we document a robust negative causal effect of past house price growth on local entrepreneurial activity. This finding stands in sharp contrast to a positive effect typically documented in developed countries. We find that strong past house price growth fosters extrapolative housing-market optimism and stimulates greater housing investment. Consistent with crowding out, housing optimism — and the ensuing surge in housing investment — redirects resources away from entrepreneurship. This belief-based channel highlights an important mechanism through which housing booms may dampen real economic activity in emerging markets.