DP12094 To bribe or not to bribe? Corruption uncertainty and corporate practices
|Author(s):||Jan Hanousek, Anastasiya Shamshur, Jiri Tresl|
|Publication Date:||June 2017|
|Keyword(s):||cash holdings, corporate investment, Corruption, Europe, firms, panel data, uncertainty|
|Programme Areas:||Financial Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12094|
Using a large sample of private firms over the period from 2001 to 2013, we study the effect of corruption uncertainty on corporate investments and cash holdings. We find that a higher uncertainty about the level of corruption is associated with lower corporate investments and lower cash holdings. These results are sensitive to the ownership structure of a firm. Firms with no foreign majority ownership appear to be more sensitive to corruption-induced uncertainty than majority-controlled foreign firms. They significantly decrease their investments and cash holdings. We hypothesize that they move their cash off-balance-sheet to create cash reserves as the uncertainty of when, whom, and how much to bribe increases.