Abstract

http://ssrn.com/abstract=1090968
 
 

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Sheltering Corporate Assets from Political Extraction


Lorenzo Caprio


Università Cattolica del Sacro Cuore, Milano

Mara Faccio


Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

John J. McConnell


Purdue University

May 7, 2008

AFA 2009 San Francisco Meetings Paper

Abstract:     
We hypothesize that firms structure their asset holdings so as to shelter assets from extraction by politicians and bureaucrats. Specifically, in countries where the threat of political extraction is higher, we hypothesize that firms will hold a lower fraction of their assets in liquid form. Consistent with this conjecture, using firm-level data from 109 countries, we find that, across countries, corporate holdings of cash and marketable securities are negatively correlated with measures of political corruption. Further, we find that annual investment in property, plant, equipment, and inventory plus dividends is positively correlated with the measures of corruption suggesting that owners channel their cash into harder to extract assets. To the extent that this deployment of assets is less efficient than would occur in the absence of the threat of political extraction, corporate sheltering of assets may represent a channel through which corruption reduces economic growth.

Number of Pages in PDF File: 51

JEL Classification: F30, G3, G31, G38

working papers series


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Date posted: March 25, 2008 ; Last revised: June 29, 2009

Suggested Citation

Caprio, Lorenzo and Faccio, Mara and McConnell, John J., Sheltering Corporate Assets from Political Extraction (May 7, 2008). AFA 2009 San Francisco Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1090968 or http://dx.doi.org/10.2139/ssrn.1090968

Contact Information

Lorenzo Caprio
Università Cattolica del Sacro Cuore, Milano ( email )
Largo Gemelli, 1
Milan, Milan 20122
Italy
02 7234.2768 (Phone)
Mara Faccio (Contact Author)
Purdue University - Krannert School of Management ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
John J. McConnell
Purdue University ( email )
MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)
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