Corruption, political connection, and firm investments

Hieu Quang Nguyen

International Review of Financial Analysis, 2023, vol. 90, issue C

Abstract: I provide evidence that U.S. firms in more corrupt areas have lower investment expenditure than firms in less corrupt areas. A one standard deviation increase in corruption rate is associated with a 8.6% decline in a firm’s investment from the median. Firms with a high degree of geographical concentration cut investment spending more aggressively in response to corruption. Notably, firms primarily scale down on research and development. I also find that political connections insulate firms from the negative impact of corruption. The investment reduction effect is almost non-existent in firms well connected to politicians. This finding further affirms the advantage that politically connected firms enjoy over non-connected firms.

Keywords: Investment; Corruption; Political connection; Campaign contribution (search for similar items in EconPapers)
JEL-codes: D72 G31 G32 G38 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:90:y:2023:i:c:s1057521923003800

DOI: 10.1016/j.irfa.2023.102864

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