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Eat, Drink, Firms, Government: An Investigation of Corruption from the Entertainment and Travel Costs of Chinese Firms

  • Hongbin Cai
  • Hanming Fang
  • Lixin Colin Xu

We propose entertainment and travel costs (ETC) expenditures as a measure of corruption in Chinese firms. These expenses are publicly reported in firms' accounting books, and on average they amount to about 3 percent of a firm's total value added. We find that ETC is a mix that includes grease money to obtain better government services, protection money to lower tax rates, managerial excesses, and normal business expenditures to build relational capital with suppliers and clients. Entertainment and travel costs overall have a significantly negative effect on firm productivity, but we also find that some components of ETC have substantial positive returns to firms.

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File URL: http://dx.doi.org/10.1086/651201
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File URL: http://dx.doi.org/10.1086/651201
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 54 (2011)
Issue (Month): 1 ()
Pages: 55 - 78

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Handle: RePEc:ucp:jlawec:doi:10.1086/651201
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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