Expropriation Risk and Firm Growth: A Corporate Transparency Channel
University of Iowa - Henry B. Tippie College of Business
Sergei M. Guriev
New Economic School (NES); Center for Economic and Financial Research (CEFIR); Centre for Economic Policy Research (CEPR)
May 9, 2011
We propose a new channel through which expropriation risk reduces capital allocation efficiency and decreases firm growth. We build an agency model of corporate disclosure when companies face risks of expropriation. The model predicts that in countries with insecure property rights, corporations mitigate the risk of expropriation by reducing transparency. We test this channel by employing a difference-in-difference approach. Using a panel of over 16,000 firms from 84 countries, we find that transparency of companies prone to expropriation is lower in countries with insecure property rights. The reduced transparency has an adverse effect on the efficiency of capital allocation and corporate growth.
Number of Pages in PDF File: 53
Keywords: Resource Curse, Expropriation, Politics and Finance, Corporate Transparency and Disclosure, Investment Efficiency, Industry Growth
JEL Classification: G15working papers series
Date posted: December 29, 2008 ; Last revised: May 11, 2011
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