Corporate profitability and the global persistence of corruption

Stephen P. Ferris, Jan Hanousek and Jiri Tresl

Journal of Corporate Finance, 2021, vol. 66, issue C

Abstract: We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries from 2001 to 2015. Using publicly available information and stochastic frontier analysis, we create a proxy for corporate corruption based on a firm's internal inefficiency. We find that corruption enhances a firm's profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. In spite of corruption's negative effects on a country's economy, we conclude that it persists because of its ability to improve corporate profitability. We refer to this effect as the Corporate Advantage Hypothesis.

Keywords: Corruption; Inefficiency; Performance; Private firms (search for similar items in EconPapers)
JEL-codes: F38 G30 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Corporate Profitability and the Global Persistence of Corruption (2020)
Working Paper: Corporate Profitability and the Global Persistence of Corruption (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920302996

DOI: 10.1016/j.jcorpfin.2020.101855

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