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To bribe or not to bribe? Corruption uncertainty and corporate practices

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  • Hanousek, Jan
  • Shamshur, Anastasiya
  • Tresl, Jiri

Abstract

Using a large sample of private firms over the period from 2001 to 2013, we study the effect of corruption uncertainty on corporate investments and cash holdings. We find that a higher uncertainty about the level of corruption is associated with lower corporate investments and lower cash holdings. These results are sensitive to the ownership structure of a firm. Firms with no foreign majority ownership appear to be more sensitive to corruption-induced uncertainty than majority-controlled foreign firms. They significantly decrease their investments and cash holdings. We hypothesize that they move their cash off-balance-sheet to create cash reserves as the uncertainty of when, whom, and how much to bribe increases.

Suggested Citation

  • Hanousek, Jan & Shamshur, Anastasiya & Tresl, Jiri, 2017. "To bribe or not to bribe? Corruption uncertainty and corporate practices," CEPR Discussion Papers 12094, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12094
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    More about this item

    Keywords

    Corporate investment; Corruption; Uncertainty; Cash holdings; Firms; Panel data; Europe;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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