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Corporate Profitability and the Global Persistence of Corruption

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  • Stephen P. Ferris
  • Jan Hanousek
  • Jiri Tresl

Abstract

We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries over the period 2001 to 2015. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, we find that corruption enhances a firm’s profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. We conclude that corruption persists because of its ability to improve a firm’s return on assets, which we refer to as the Corporate Advantage Hypothesis.

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  • Stephen P. Ferris & Jan Hanousek & Jiri Tresl, 2020. "Corporate Profitability and the Global Persistence of Corruption," CERGE-EI Working Papers wp659, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp659
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    More about this item

    Keywords

    corruption; inefficiency; performance; private firms;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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