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Do corrupt practices lead to increased cash holdings in firms? International evidence

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  • Banerjee, Rajabrata
  • Gupta, Kartick
  • Han, Hien Duc
  • Krishnamurti, Chandrasekhar

Abstract

Using cross-country firm-level data from 36 countries, we find that corrupt practices are associated with higher cash holdings. Further analysis suggests that corrupt firms are more constrained financially, motivating them to hold more cash. Our cross-country findings indicate that the positive association between corrupt business practices and corporate cash holdings is more pronounced in contexts characterized by higher institutional quality and greater market orientation. Moreover, our evidence also suggests that corrupt behaviors and high cash holdings are more prominent among young firms and those with high capital expenditure and market to book ratio. Our results survive endogeneity tests and are robust to the use of alternate models and measures.

Suggested Citation

  • Banerjee, Rajabrata & Gupta, Kartick & Han, Hien Duc & Krishnamurti, Chandrasekhar, 2025. "Do corrupt practices lead to increased cash holdings in firms? International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25002458
    DOI: 10.1016/j.pacfin.2025.102908
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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