IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v65y2024ics154461232400669x.html

Local corruption and SME investment

Author

Listed:
  • Trinh, Quoc Dat
  • Tran, Quoc Trung
  • Le, Son Dai
  • Nguyen, Thi Phuong Dung

Abstract

Prior research shows that corruption negatively affects corporate investment in large firms. However, we posit that this effect may be opposite in the context of SMEs. This paper investigates the relationship between local corruption and SME investment in a transition economy. With a sample of 262,767 observations, we document that local corruption is positively related to both SME investment expenditure and investment efficiency.

Suggested Citation

  • Trinh, Quoc Dat & Tran, Quoc Trung & Le, Son Dai & Nguyen, Thi Phuong Dung, 2024. "Local corruption and SME investment," Finance Research Letters, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:finlet:v:65:y:2024:i:c:s154461232400669x
    DOI: 10.1016/j.frl.2024.105639
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S154461232400669X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.105639?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Thakur, Bhanu Pratap Singh & Kannadhasan, M., 2019. "Corruption and cash holdings: Evidence from emerging market economies," Emerging Markets Review, Elsevier, vol. 38(C), pages 1-17.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    4. Wang, Xin & Song, Di, 2021. "Does local corruption affect IPO underpricing? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 127-138.
    5. Jensen, Michael C. & Meckling, William H., 2008. "Theory of the firm: managerial behavior, agency costs and ownership structure," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    6. Tran, Hien Thu, 2019. "Institutional quality and market selection in the transition to market economy," Journal of Business Venturing, Elsevier, vol. 34(5), pages 1-1.
    7. Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April.
    8. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    9. Tran, Thi Bich & Grafton, R. Quentin & Kompas, Tom, 2009. "Institutions matter: The case of Vietnam," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(1), pages 1-12, January.
    10. Wang, Yizhong & Chen, Carl R. & Huang, Ying Sophie, 2014. "Economic policy uncertainty and corporate investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 227-243.
    11. John (Jianqiu) Bai & Douglas Fairhurst & Matthew Serfling & David Denis, 2020. "Employment Protection, Investment, and Firm Growth," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 644-688.
    12. Smith, Jared D., 2016. "US political corruption and firm financial policies," Journal of Financial Economics, Elsevier, vol. 121(2), pages 350-367.
    13. Nguyen, Thuy Thu & van Dijk, Mathijs A., 2012. "Corruption, growth, and governance: Private vs. state-owned firms in Vietnam," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 2935-2948.
    14. Chen, Ruiyuan & El Ghoul, Sadok & Guedhami, Omrane & Wang, He, 2017. "Do state and foreign ownership affect investment efficiency? Evidence from privatizations," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 408-421.
    15. Min Zhang & Wen Zhang & Sheng Zhang, 2016. "National culture and firm investment efficiency: international evidence," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 23(1), pages 1-21, March.
    16. Quoc Trung Tran, 2020. "Foreign ownership and investment efficiency: new evidence from an emerging market," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 15(6), pages 1185-1199, March.
    17. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    18. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2004. "Marginal q, Tobin's q, Cash Flow, and Investment," Southern Economic Journal, John Wiley & Sons, vol. 70(3), pages 512-531, January.
    19. Qing Liu & Ruosi Lu & Xiangjun Ma, 2015. "Corruption, Financial Resources and Exports," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 1023-1043, November.
    20. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2004. "Marginal q, Tobin’s q, Cash Flow, and Investment," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 512-531, January.
    21. Gueorguiev, Dimitar & Malesky, Edmund, 2012. "Foreign investment and bribery: A firm-level analysis of corruption in Vietnam," Journal of Asian Economics, Elsevier, vol. 23(2), pages 111-129.
    22. Xiao, Gang, 2013. "Legal shareholder protection and corporate R&D investment," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 240-266.
    23. R. David Mclean & Tianyu Zhang & Mengxin Zhao, 2012. "Why Does the Law Matter? Investor Protection and Its Effects on Investment, Finance, and Growth," Journal of Finance, American Finance Association, vol. 67(1), pages 313-350, February.
    24. Jie Bai & Seema Jayachandran & Edmund J Malesky & Benjamin A Olken, 2019. "Firm Growth and Corruption: Empirical Evidence from Vietnam," The Economic Journal, Royal Economic Society, vol. 129(618), pages 651-677.
    25. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    26. Tran, Quoc Trung, 2021. "Local corruption and dividend policy: Evidence from Vietnam," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 195-205.
    27. Quoc Trung Tran, 2020. "Corruption and corporate risk-taking: evidence from emerging markets," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(5), pages 1238-1255, December.
    28. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manh Huu Nguyen & Giang Thi Huong Vuong & Trung Duc Nguyen, 2025. "Corporate Investment and Political Stability: Role of an Enormous Anti-Corruption Campaign, Ownership Structure, and Financial Constraints in An Emerging Economy," SAGE Open, , vol. 15(2), pages 21582440251, June.
    2. Ren, Qiaoqiao & Hu, Chengxuan & Xu, Min & Song, Jiatong, 2026. "Association rule mining of damage severities in autonomous vehicle rear-end crashes with supplementary built environment data," Reliability Engineering and System Safety, Elsevier, vol. 265(PA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tran, Quoc Trung, 2021. "Local corruption and dividend policy: Evidence from Vietnam," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 195-205.
    2. Tran, Quoc Trung, 2020. "Creditor protection, shareholder protection and investment efficiency: New evidence," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    3. Tran, Quoc Trung, 2025. "Local corruption and SME cash holdings in an emerging market," International Review of Economics & Finance, Elsevier, vol. 103(C).
    4. Hoang, Huy Viet & Hoang, Khanh & Hoang, Viet & Nguyen, Cuong, 2025. "Investment under anticorruption: Evidence from the high-profile anticorruption campaign in Vietnam," Emerging Markets Review, Elsevier, vol. 69(C).
    5. Yadav, Akash Singh & Yadav, Inder Sekhar, 2025. "The impact of country- and firm-level governance on capital allocation efficiency: New evidence from India," Journal of Financial Stability, Elsevier, vol. 78(C).
    6. Souvik Banerjee & Debaditya Mohanti, 2025. "Foreign Institutional Ownership and Its Impact on Investment Efficiency in Manufacturing Firms: Evidence from Indian Capital Market," Business Perspectives and Research, , vol. 13(1), pages 132-144, January.
    7. Thi Huong Dao & Quoc Trung Tran & Thi Bich Nga Vuong & Son Dai Le, 2023. "Female Directors and Investment Efficiency: New Evidence from an Emerging Market," Indian Journal of Corporate Governance, , vol. 16(2), pages 200-217, December.
    8. Tran, Quoc Trung & Nguyen, Van Phong & Dang, Duong Huy Chuong & Nguyen, Ba Phong & Le, Phuong Linh, 2023. "Local corruption and capital structure," Finance Research Letters, Elsevier, vol. 55(PB).
    9. Le, Anh-Tuan & Doan, Anh-Tuan & Phan, Thu, 2021. "Institutional development and firm risk from a dynamic perspective: Does ownership structure matter?," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 342-357.
    10. Tran, Quoc Trung, 2023. "Employment protection legislation and R&D investment," Research in International Business and Finance, Elsevier, vol. 64(C).
    11. Muhammad Ansar Majeed & Tanveer Ahsan & Ammar Ali Gull, 2024. "Does corruption sand the wheels of sustainable development? Evidence through green innovation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(5), pages 4626-4651, July.
    12. Stavros E. Arvanitis & Theodoros V. Stamatopoulos & Dimitris Terzakis, 2018. "Is There a Non-linear Relationship of Market Value with Cash and Ownership?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 3-25, January-M.
    13. Le, Anh-Tuan & Doan, Anh-Tuan, 2020. "Corruption and financial fragility of small and medium enterprises: International evidence," Journal of Multinational Financial Management, Elsevier, vol. 57.
    14. Efstathios Magerakis & Ahsan Habib, 2022. "Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 402-432, September.
    15. Gao, Yihong, 2025. "How do social insurance premiums influence corporate underinvestment? Evidence from an emerging market," Economic Modelling, Elsevier, vol. 149(C).
    16. Mateev, Miroslav & Poutziouris, Panikkos & Ivanov, Konstantin, 2013. "On the determinants of SME capital structure in Central and Eastern Europe: A dynamic panel analysis," Research in International Business and Finance, Elsevier, vol. 27(1), pages 28-51.
    17. Vijayakumaran, Ratnam, 2021. "Impact of managerial ownership on investment and liquidity constraints: Evidence from Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 55(C).
    18. Chowdhury, Md Raihan Uddin & Alam, Md Asif Ul & Devos, Erik & Chy, Md Kamrul Hasan, 2024. "Women in C-suite: Does Top Management Team gender diversity matter? Evidence from firm investment efficiency," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    19. Chowdhury, Md Raihan Uddin & Xie, Feixue & Hasan, Md Mahmudul, 2023. "Powerful CEOs and investment efficiency," Global Finance Journal, Elsevier, vol. 58(C).
    20. BENKRAIEM, Ramzi & GAAYA, Safa & LAKHAL, Faten, 2024. "Tax avoidance, investor protection, and investment inefficiency: An international evidence," Research in International Business and Finance, Elsevier, vol. 69(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:65:y:2024:i:c:s154461232400669x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.