US political corruption and firm financial policies

Jared D. Smith

Journal of Financial Economics, 2016, vol. 121, issue 2, 350-367

Abstract: Using US Department of Justice data on local political corruption, I find that firms in more corrupt areas hold less cash and have greater leverage than firms in less corrupt areas. The results are robust to including a range of controls and to using an instrumental variable approach, two alternative survey measures of corruption, and propensity score matching. Further, the association between corruption and leverage is largest among firms that operate primarily around their headquarters. Overall, the evidence is consistent with the hypothesis that firms manage liquidity downward and debt obligations upward to limit expropriation by corrupt local officials.

Keywords: Cash holdings; Leverage; Financial policy; Local corruption; Rent-seeking (search for similar items in EconPapers)
JEL-codes: D72 G31 G32 G38 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (112)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:121:y:2016:i:2:p:350-367

DOI: 10.1016/j.jfineco.2015.08.021

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