Corporate profitability and the global persistence of corruption

0542029 - NHU-C 2022 RIV NL eng J - Journal Article
Ferris, S. P. - Hanousek, Jan - Trešl, Jiří
Corporate profitability and the global persistence of corruption.
Journal of Corporate Finance. Roč. 66, February (2021), č. článku 101855. ISSN 0929-1199. E-ISSN 1872-6313
R&D Projects: GA ČR GA18-18509S
Institutional support: Progres-Q24
Keywords : corruption * inefficiency * performance
OECD category: Applied Economics, Econometrics
Impact factor: 5.107, year: 2021
Method of publishing: Open access
https://doi.org/10.1016/j.jcorpfin.2020.101855

We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries from 2001 to 2015. Using publicly available information and stochastic frontier analysis, we create 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. In spite of corruption’s negative effects on a country’s economy, we conclude that it persists because of its ability to improve corporate profitability. We refer to this effect as the Corporate Advantage Hypothesis.

Permanent Link: http://hdl.handle.net/11104/0319524