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

Jan Hanousek (), Anastasiya Shamshur and Jiri Tresl

No 12094, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: cash holdings; corporate investment; Corruption; Europe; firms; panel data; uncertainty (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-pol
Date: 2017-06
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