Profitability of politically corrupt firms: Evidence from Romania

SeHyun Park

Emerging Markets Review, 2023, vol. 54, issue C

Abstract: Extending the twin-agency problem model, this paper shows that political corruption affects firms by empowering the controlling shareholders and thereby intensifying agency conflicts within selected firms instead of simple political extractions. The fact that controlling shareholders of politically corrupt firms divert more resources from their firms explains the inferior accounting performance despite the well-documented benefits of political connections. Moreover, a higher degree of diversion does not result in a value discount due to the increased value of control. These are demonstrated by evidence from a unique series of political events in Romania in 2015.

Keywords: Political corruption; Political connection; Agency conflict; Overinvestment; Romania (search for similar items in EconPapers)
JEL-codes: D73 G30 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:54:y:2023:i:c:s156601412200067x

DOI: 10.1016/j.ememar.2022.100950

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