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

Listed author(s):
  • Hanousek, Jan
  • Shamshur, Anastasiya
  • Tresl, Jiri

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12094.

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Date of creation: Jun 2017
Handle: RePEc:cpr:ceprdp:12094
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