Expropriation Risk and Firm Growth: A Corporate Transparency Channel

53 Pages Posted: 11 Oct 2007 Last revised: 10 May 2011

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Sergei M. Guriev

Sciences Po; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: May 9, 2011

Abstract

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.

Keywords: resource curse, expropriation, transparency, investment efficiency, growth

JEL Classification: G15, G18, G38, K42, O43

Suggested Citation

Durnev, Art and Guriev, Sergei M., Expropriation Risk and Firm Growth: A Corporate Transparency Channel (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1020476 or http://dx.doi.org/10.2139/ssrn.1020476

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

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HOME PAGE: http://www.artdurnev.com

Sergei M. Guriev

Sciences Po ( email )

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Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

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