Discussion Paper Details

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Title: To bribe or not to bribe? Corruption uncertainty and corporate practices

Author(s): Jan Hanousek, Anastasiya Shamshur and Jiri Tresl

Publication Date: June 2017

Keyword(s): cash holdings, corporate investment, Corruption, Europe, firms, panel data and uncertainty

Programme Area(s): Financial Economics

Abstract: 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.

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Bibliographic Reference

Hanousek, J, Shamshur, A and Tresl, J. 2017. 'To bribe or not to bribe? Corruption uncertainty and corporate practices'. London, Centre for Economic Policy Research.