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Anti-corruption disclosure as a necessary evil: impact on profitability and stability of extractive firms in Africa

Author

Listed:
  • Emmanuel Tetteh Asare
  • King Carl Tornam Duho
  • Cletus Agyenim-Boateng
  • Joseph Mensah Onumah
  • Samuel Nana Yaw Simpson

Abstract

Purpose - This study aims to examine the effect of anti-corruption disclosure on the profitability and financial stability of extractive firms in Africa. It also tests the convergence of profitability and financial stability. Design/methodology/approach - The study uses an unbalanced panel data of 27 firms operating in five African countries covering the period 2006–2018. Anti-corruption assessment is done in line with GRI 205: Anti-Corruption. Profitability is measured using the return on asset and return on equity, whereas thez-score measures financial stability. The study uses the panel-corrected error regression technique for estimation. Findings - There is evidence that corruption disclosure reduces the financial stability of firms. Disclosures on corruption analysis and corruption training are the main factors driving the reduction in financial stability. The effect on profitability is not significant except in the case of disclosure on corruption response, which also reduces profitability. There is strong statistical evidence to suggest that profitability and financial stability of extractive firms converge. This suggests that less-performing firms catch up with high performers. Research limitations/implications - The study has relevant implications for practitioners, policymakers and the academic community. The study uses data that is skewed towards large extractive firms. Originality/value - This study is premier in exploring the effect of anti-corruption disclosure on performance metrics among extractive firms in Africa. It is also unique in providing a test of both beta and sigma convergence of performance among the firms.

Suggested Citation

  • Emmanuel Tetteh Asare & King Carl Tornam Duho & Cletus Agyenim-Boateng & Joseph Mensah Onumah & Samuel Nana Yaw Simpson, 2021. "Anti-corruption disclosure as a necessary evil: impact on profitability and stability of extractive firms in Africa," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 28(2), pages 531-547, January.
    • Handle: RePEc:eme:jfcpps:jfc-09-2020-0173
    DOI: 10.1108/JFC-09-2020-0173
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