The Impact of Anti-Corruption on Macau’s Gaming Industry: An Externality Analysis

This study identifies and decomposes the impact of China’s central anti-corruption on Macau’s gaming industry by examining the quarter revenue data of six gaming companies from 2010 to the third quarter of 2017. The analysis results show that the negative impact of the anti-corruption campaign on the revenue of Macau’s gaming industry is lagging behind, and the strengthening of anti-corruption efforts since the establishment of the 18th Central Committee of the Communist Party of China has caused clear externality. The effect remains significant after excluding the influences of macroeconomic factors, the Brazilian World Cup, and the Asia gaming industry competition. For the impact mechanism, the effect is mainly determined through the per capita gaming of Macau visitors instead of the number of gamers. This study provides empirical support for research on the externality of anti-corruption.

the mainland have become an important part of Macau's tourism industry and high-income Chinese are also major gamers 1 . When the central government promotes anti-corruption efforts, the relative number of gamers from mainland China decreases due to censorship or deterrent effect. This condition influences Macau's gaming revenue.
The anti-corruption in the mainland has been strengthened since 2014, causing a decline in the gross gaming revenue of Macau's gaming industry. Li Gang, director of the Macau Joint Liaison Office, said that with the intensification of anti-corruption in mainland China, several corrupt officials, including the leaders of some state-owned enterprises, do not dare to gamble in Macau 2 . Statistics show that in the second, third and fourth quarters of 2014, the revenue of luxury lounges, which account for more than 70% of Macau's gaming industry, dropped 6%, 19% and 29%, respectively, over the previous year's figures. 3 What is the effect of the central anti-corruption on Macau's gaming industry?
How does this externality happen? Are the externalities significant since the establishment of the Communist Party of China's 18th National Congress? The present study aims to answer these questions based on data obtained from six gaming companies in Macau from 2010 to the third quarter of 2017.

Literature Review
Regarding the economic impact of corruption and anti-corruption, although some scholars believe that corruption has a positive effect on the economy (Leff, 1964;Huntington, 1969;Rock & Bonnett, 2004;Aidt et al., 2008;Meon & Weill, 2008;Wu & Rui, 2010) anti-corruption have a unified basis on popular opinion. At different stages of economic development, the strength of anti-corruption vary (He, 2000;Elizabeth, 2007) and their impacts on macroeconomics and firm performance vary as well (Murphy et al., 1993;Mauro, 1995;Zeume, 2012).
In China's current environment, the anti-corruption drive is undoubtedly the most closely observed issue, especially since the establishment of the Communist Party's 18th National Congress. Relevant articles include those by Dang et al. (2015), Wang & Wang (2016) and Ying et al. (2016), who found that anti-corruption is conducive to economic growth at macro and micro levels, and the short-term performance of enterprises seeking political rent is declining.
Simultaneously, enterprises improve their performance by optimizing investment efficiency. In addition, the luxury spending of government officials drop significantly.
The central anti-corruption campaign only targets relevant individuals within the mainland but affects other areas, such as Macau, through these individuals' 1 Statistics from the Macau Bureau of Statistics show that the proportion of mainland tourists has exceeded 60% since 2012. specific behaviours. Macau has a small economy and a single industrial structure, which is significantly affected by external shocks (Zuo et al., 2008;Mao, 2009). The gaming industry is an economic pillar of Macau. Given Macau's proximity to mainland China, many Chinese tourists have become an important factor in developing the island's gaming industry (Du, 2007;Guo & Zhao, 2009). Therefore, the central anti-corruption campaign of the Chinese government may potentially generate externalities to Macau's economy by reducing the gaming activities of certain groups of people. The present study quantifies the anti-corruption activities in mainland China and analyses its effect on Macau's gaming industry by providing an example of the externality of the anti-corruption.

Empirical Analysis
Based on the preceding basic understanding and inference, we identify the externalities of the anti-corruption campaign and analyze its mechanism and dynamic changes.

Data Description
Our empirical evidence is based on quarterly data from six gaming companies in Macau from 2010 to the third quarter of 2017. The data sources are the quarterly financial reports of these companies. TR represents the gaming company's revenue, and we use log (TR) as the explanatory variable, which is the natural logarithm of the gaming company's revenue. The core explanatory variables comprise two variables that reflect the anti-corruption drive's intensity: 1) Drop represents the number of officials' drops in quarters compiled through the web- In the mechanism analysis, AGT and GDP rate represent the quarterly GGR and quarter-on-quarter YOY growth of GDP per capita in 23 provinces of mainland China and 21 other countries, respectively. 8 Specific statistical description is provided in Table 1.

Basic Identification
This study uses Equation (1) to identify the impact of central anti-corruption on the quarterly gaming revenue of Macau's six gaming firms.

( )
Year Quarter log TR In Equation (1) (1) and (2)  the Central Inspection Group after the 18th National Congress, in the regression of columns (3) and (4), we add the cross-multiplying terms of Drop and CP to measure the dynamic change of this externality since the establishment of the 18th National Congress. Results show that the cross-multiplying terms of L.
Drop and L.CP is significant at 1% level, which indicates that after the 18th CPC National Congress, strengthening the central anti-corruption has intensified the externalities. Accordingly, we test the robustness in the next section.

Robustness Test
From the previous section, we identify the anti-corruption campaign's negative externalities against Macau's gaming industry. Based on this preliminary conclusion, we conduct a series of robustness tests to enhance the credibility of conclusions. Based on regression Equation (1), other control variables are added to isolate the effects of other factors that may exist.

1) Robustness test based on macroeconomic environment
Macau is vulnerable to fluctuations of the external economic environment because of its small economy with a single industrial structure. Therefore, we must confirm whether or not the externalities of anti-corruption remain significant after weeding out these impacts. Specifically, we add the S & P 500 to reflect macroeconomic volatility. In addition, as foreign tourists dominate Macau's C. Q. Chen gaming industry, macroeconomic fluctuations affect this industry through changes in the number of gaming tourists. Accordingly, we also consider the number of Macau's gaming tourists as an alternative measure of the macroeconomic situation, including TGT and OGT. Results are shown in columns (1) to (6) of Table 3. We find that after controlling for such variables, the coefficients for anti-corruption variables remain significantly negative at 1% level. Therefore, the robustness of the conclusions has been raised.

2) Robustness test based on incident factor
In addition, we expect that the externalities from results are not from the ef- (1) to (6) in Table 4 show that the coefficient of L. Drop remains significantly negative after controlling for Mainland China's quasi-type lottery sales (JC). In addition, the cross-multiplying terms of L. Drop and L.CP's coefficient remains significantly negative; thus, the validity of the basic conclusion we preliminarily proposed is supported.

3) Robustness test based on Asia gaming competition
With the casino market's rapid expansion in Asia, the casino competition in As the growing number of casinos in Asia in recent years will likely distract gaming travelers and thus affect the gaming revenue in Macau, we have to test whether or not the externalities shown in the basic regression results will remain significant after the competition's effects are eliminated, to confirm the externalities of corruption.
Columns (1) to (4) in Table 5 indicate that after controlling Casino_1 and Casino_2 in the other Asian countries, the coefficient of L. Drop remains significantly negative, and the coefficient of the cross-multiplying terms of L. Drop and L.CP also remains significantly negative; thus, our preliminary basic conclusion is strengthened. Specifically, anti-corruption has negative externality to Macau's gaming industry, and the externality has been further enhanced after the establishment of the 18th CPC National Congress.

Mechanism Analysis of Externality
From the previous section, we identify and test the impact of the anti-corruption campaign on Macau's gaming industry. Moreover, we aim to determine the mechanism of this externality. Speculating that the impact on Macau's gaming industry can be easily achieved in two ways: 1) by influencing the number of gaming travelers visiting Macau and 2) by influencing the per-capita gaming spending of Macau gaming travelers. We aim to judge the path through which anti-corruption works to influence Macau's gaming industry. We proceed based on Equation (2): Equation (2) (1) and (2), we examine the coefficient of L. According to Drop in column (1), the coefficient is significantly negative, which means that the anti-corruption drive significantly reduced the number of mainland gaming travelers visiting Macau. That is, the anti-corruption externality mainly works through the decline in the number of gaming players. However, the result shows that its coefficient is significantly positive, indicating that the anti-corruption campaign does not significantly reduce the number of gaming travelers visiting Macau.
Similarly, given the situation after the 18th National Congress of the Communist Party of China, the coefficient of the cross-multiplying terms of L. Drop and L. CP also remains significantly positive at the 1% level. Therefore, the anti-corruption and the intensified anti-corruption efforts after the 18th National Congress do not significantly reduce the number of gaming travellers visiting Macau. Thus, we can judge that the mechanism of anti-corruption externality works through the decline of per-capita gaming spending. By combining background knowledge with our findings, we can assume that a small number of people (such as luxury guests) who invest heavily in gaming has reduced their overall per-capita gaming spending, which is related to the corruption deterrent.

Conclusion
Based on the externalities of the anti-corruption campaign, the central anti-corruption has had an impact on neighboring economies. Given its geographical proximity to mainland China and unique industrial characteristics, Macau has become one of the main recipients of the central anti-corruption influence on externalities. Taking the anti-corruption work by the central government as an example since 2010, the present study uses the quarterly revenue data acquired from six gaming companies in Macau from 2010 to the third quarter of 2017 to identify the anti-corruption's impact on Macau's gaming industry and analyze its dynamics and approaches.
Research shows that the central anti-corruption has a negative external effect on Macau's gaming industry. The impact has one lag, and the externalities have become apparent since the establishment of the 18th CPC National Congress.
After excluding the influences of macroeconomic factors, the Brazilian World Cup and the Asia gaming industry competition, the conclusion is robust. For the influence, this externality is mainly due to the effect of Macau's per-capita gaming spending. Combining these results with the basic facts, we can conclude that the anti-corruption leads to a reduction in high-spending groups involved in betting, which drags down the overall per-capita gaming spending. We propose that a connection exists between these high-consumption groups and the corruption deterrent. This study has raised an awareness of the anti-corruption's impact and provided an example of its externality.